Our response to the Business, Energy and Industrial Strategy (BEIS) Department consultation focuses on those matters in the Consultation Paper with global or European relevance for the audit profession and the corporate reporting ecosystem at large.
The discussion on the audit’s future in the UK cannot be considered in isolation, as the audit market is globally interconnected through networks of audit firms auditing companies and groups that operate worldwide. We strongly encourage global coordination and cooperation on changes to reporting models, company’s responsibilities, the auditor’s role and supervision.
We commend the UK Government for the quality of the process followed to arrive at the Consultation Paper, which included discussions with relevant stakeholders, including the audit profession.
All key parties in the ecosystem have a responsibility to strengthen corporate reporting. Our profession is open to changes, and looks forward to a fruitful dialogue with stakeholders to further develop its role and to contribute to finding solutions to the key issues.
Our key comments are on all ‘3 pillars of corporate reporting’:
1. Corporate governance and related auditor’s role
2. External audit
The European Parliament and the Council reached a political agreement on public country-by-country reporting (CBCR) on 1 June, after over 5 years of political deadlock.
The new measure would oblige multinationals, with an EUR 750 million turnover and operations in the EU, to disclose publicly and on a country-basis a set of key data to enable the assessment of their tax practices.
The final agreement also introduces a new requirement for statutory auditors of the affected entities. It says that a statutory auditor must check whether the audited entity is obliged to publish CBC reports, and if it has done so (existence check).
The International Auditing and Assurance Standards Board (IAASB) approved an Exposure Draft (ED) of International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCEs). They are currently working on the explanatory memorandum and the questions that will accompany the ED.
We expect that the ED will be published in the week of 19 July with a consultation period of 180 days.
The Monitoring Group (MG) has announced a further step to implement its reforms. This includes establishing the MG Nominating Committee (MG NC) and issuing an open call for applications for board members to the Public Interest Oversight Board (PIOB) for an initial 3-year term commencing 1 January 2022.
The composition of the IAASB and the International Ethics Standards Board for Accountants (IESBA) will transition to become multistakeholder structures, following the MG recommendations to strengthen the international audit and ethics standard setting system.
The PIOB welcomes applications for membership of the new Standard-Setting Boards (SSBs) Nominations Committee, which will be responsible for selecting candidates to both the IAASB and the IESBA and recommending their appointments for PIOB approval.
The International Federation of Accountants (IFAC), AICPA & CIMA (representing the Association of International Certified Professional Accountants) issued a new global benchmarking study The State of Play in Sustainability Assurance which highlights significant differences in sustainability assurance across jurisdictions.
The study captures and analyses the extent to which companies are reporting and obtaining assurance over their sustainability disclosures, which assurance standards are being used, and which companies are providing the assurance service.
Some of the key findings are:
Accountancy Europe’s members discussed this study, amongst other matters, during a members’ webinar organised together with IFAC and CIMA on 8 July.
See also Accountancy Europe’s feedback on the Corporate Sustainability Reporting Directive (CSRD) proposal which we have just submitted to the European Commission.
The Quartermasters, appointed to ensure the audit reform delivery in the Netherlands, have drawn up 10 Audit Quality Indicators (AQIs) to gain more insight into the quality of the accountancy sector. The AQIs can provide users of the annual accounts with further insight into factors that influence the quality of the annual statutory audit.
The 10 proposed AQIs are:
Level 1: Quality of the engagement file
1. Involvement of the external auditor
2. Errors in the Annual Financial Report
3. Fraud and going concern
Level 2: Quality Control System (within the audit firm)
4. Quality enhancing measures
5. Quality control system
Level 3: Context (in regard to audit firm)
6. Turnover in audit team
8. Willingness to innovate
9. Budget overrun
Level 4: Ecosystem
10. Client satisfaction
The Consultation (web page in Dutch) wants to give stakeholders the opportunity to express their opinion on the proposed set of quality indicators. It is open for comment until 19 September 2021.
The Dutch Minister of Finance Hoekstra has announced proposals on better governance of accountancy firms.
The proposals include that:
Read more (in Dutch)
The law was passed on 28 May and most of its provisions are applicable already from 1 July 2021. It came as a response to the Wirecard case.
The law focuses on auditor independence, auditor liability and also introduces stringent sanctions for auditors found to have signed an incorrect auditor’s report.
Key changes to current practice impacting auditors now include:
The focus of the new law is mostly on audit, but there are also changes aimed at strengthening certain aspects of corporate governance and increasing the power of Germany’s regulatory oversight authorities.