The European Commission (EC) has published the outcome of its assessment of developments in EU market for carrying out statutory audits on public-interest entities (PIEs). The assessment relates to years 2015 – 2018.
The report highlights that:
The EC notes that further assessments should take into account recent cases involving high-profile corporate entities (e.g. Carillion, Thomas Cook and Wirecard), which can undermine the reputation of the audit profession and investor confidence.
Finally, the EC has launched a study into the effects of the EU audit legislation on the statutory audit market. The study will feed into a future review of the audit framework’s effectiveness in improving transparency, audit quality and competition in the audit market, particularly for PIEs. The evaluation will also examine the effects of the economic crisis caused by covid-19 on the audit sector.
In our comment on the proposed regulation on digital operational resilience for the financial sector (DORA), we suggest to the EC to perform a cost/benefit analysis to justify the decision for scoping-in auditors. We also suggest to clarify whether the proposed scope has captured entities faced with significant information and communication technology (ICT) risks.
If the EC concludes to include auditors in the scope, it remains to clarify whether:
In a reply to a question of Member of the European Parliament (MEP) Carmen Avram (S&D/Romania), the EC announces that it is closely monitoring the developments of the Wirecard case.
The EC will also consider recent publications to base its decision to review the audit market framework. If those analyses conclude that EU requirements about supervision of auditors should be strengthened, a review of the audit framework could include strengthening the powers of national supervisors and/or of relevant European-level bodies.
The publications upon which the EC will base its decision include the:
The EC has replied to a question raised by Catalonian MEPs about concentration of audit firms and market distortion on 7 January. It declares that there had been no changes to market concentration despite the audit reforms to increase competition, as concluded by the 2017 market monitoring report and as the 2021 market monitoring report confirms. The EC’s forthcoming evaluation of the audit framework will focus on audit quality, auditor independence and enhancing competition.
The EC is also launching a study to assess the impact of the Audit Directive and Regulation. This, together with the recent market monitoring report, the ESMA fast-track peer review and the results of ongoing investigations into the Wirecard case, will feed into EC’s review of the audit framework.
The EU Council’s Financial Services Committee (FSC) held a meeting to discuss various financial services topics, including Wirecard on 20 January. During the meeting, the EC presented its analytical work on Wirecard and discussed aspects such as corporate governance, auditing, supervision and enforcement with the Member States’ representatives.
On audit, Member States’ views were apparently divided related to expanding auditors’ auditing requirements, increasing their liability and audit market concentration measures.
The EP and Council agreed to grant the EU Member States the option to delay by one year the application of the European Single Electronic Format (ESEF) requirements on 11 December 2020.
The uncertainty at national level perseveres, as the EP and the Council still need to ratify the delay-option before it takes legal effect.
We have been monitoring national regulatory developments related to ESEF and identified several Member States that found practical solutions to mitigate the burden on the issuers created by this uncertainty. Those measures greatly help issuers in preparing their 2020 annual financial reports.
Read more on our ESEF Collected Guidance webpage
The pandemic caused financial distress on many companies, resulting in an environment susceptible to illegal activities.
In response, the publication of the International Federation of Accountants (IFAC) asks auditors to play an ethical leadership role in helping to minimise the incidence of fraud and demonstrate that they uphold the public interest. Auditors must observe and understand the incentives and opportunities that lead companies to commit fraud.
The International Auditing and Assurance Standards Board (IAASB) approved its three quality management standards:
The new standards:
The IAASB has noted that additional support materials will be published later in 2021. These standards have a 24-month implementation period, becoming effective in December 2022.
The Association of Chartered Certified Accountants (ACCA) and Institute of Chartered Accountants in England and Wales (ICAEW) regularly analyse the evolution of Brexit and gather the key outcomes in their Brexit hubs. They update the hubs as new developments come with the aim to inform on relevant topics for the profession.
In the Netherlands, entrepreneurs must justify their application for covid-19 related support measures above EUR 100.000 to the Employee Insurance Agency UWV. That means more work for accountants/auditors and also a higher chance of corona-related disciplinary procedures at the disciplinary body Accountantskamer, says its Chair Sandra Schreuder.
Some entrepreneurs are dealing with an auditor and obtain an audit opinion for the first time. If an auditor refuses to sign a clean audit opinion, there is a risk that an entrepreneur files a complaint. This goes along with a trend that has been around for some time in disciplinary law for auditors: disciplinary complaints as a means of pressure to settle disputes.
Read more (in Dutch, after free registration)This curated content was brought to you by Júlia Bodnárová, Accountancy Europe Senior Advisor since 2017. You can send her tips by email and connect with her on LinkedIn.