Attendees at a recent ACCA and ecoDa (the European Confederation of Directors' Associations) roundtable in Brussels reached a broad consensus that the value and quality of audit should be enhanced, and that it is important to restore society's confidence in the ability of audit to add value to corporate activity.
There were, however diverging views on the appropriate tools to reach these aims, while there was agreement that a constructive dialogue with the EU decision-makers and all stakeholders is needed to ensure that final audit measures can deliver the maximum benefit for businesses in Europe.
Sue Almond, technical director at ACCA, and chair of the roundtable event said: 'It is widely acknowledged that statutory audit plays a pivotal role in business by promoting the causes of transparency, accountability and sound financial management and by helping to deter financial wrong-doing. But it is also widely accepted that the social benefits of the independent audit need to be periodically re-examined to assess whether the process continues in practice to meet the evolving needs and demands of not only users and investors but also of the wider economy and society generally.'
Bringing together 85 high profile participants from diverse backgrounds and nationalities, the event provided a platform to explore ways in which the value and quality of audit can be enhanced, restoring society's confidence in the ability of audit to add value to corporate activity.
This event also allowed participants to exchange good practice and put forward recommendations, namely on the role of audit committees and proportionate audit for SMEs at EU level.
Kay Swinburne MEP said: 'As a rapporteur for the Economic Affairs Committee, I look forward to having a constructive dialogue with stakeholders, in particular with the users of audit services, in order to better assess the impact of the European Commission proposals on their businesses. It is crucial to refer to the real economy.'
The discussions revealed a broad support for many of the ideas put forward by the Commission aiming at improving audit quality and independence. There was a clear agreement on corporate governance elements of the proposals, such as an enhanced role for audit committees, the appointment of the auditor, and that more diversity in the audit market is needed. The Commission's proposal to forbid restrictive covenants was welcomed, and there was also a unanimous and clear call for legally binding ISAs throughout the EU, including for SMEs with proportionate international standards. However, concerns were raised regarding the fact that determining proportionality is left to member states, which might result in further market fragmentation with 27 different SMEs audit rules.
Additionally, participants welcomed the willingness to improve communication through more effective dialogue between auditors, audit committees, regulators and supervisors, although there were reservations that an overly prescriptive approach could be counter-productive.
Unsurprisingly, the debate highlighted different views on some of the proposed measures linked to market structure. These measures include mandatory rotation after 6 years - where participants expressed instead their support for the existing internal rotation of partners, large 'audit only' firms and a blanket ban of non-audit services to audited clients. Some participants also expressed doubts relating to compulsory mandatory tendering, arguing that it should be up to the audit committee to decide if and when the tendering process should occur.
Sebastian Valentin Bodu MEP said: 'We should be careful not to link the independence of auditors and the financial crisis. An auditors' job is to assess financial reports, they are not in charge of assessing risky financial products. In addition, auditors are professionals, and like other regulated professions such as lawyers or doctors, they should have the ability to be monitored by their own professional bodies according to their codes of conduct and ethics.'
Some participants also voiced that the proposed reform of audit might be too early given that the implementation of some aspects of the statutory audit Directive were just recently put in place in some member states.
Patrick Zurstrassen, Chairman of ecoDa, recommended that 'the European Commission should keep in mind that audit committees act on behalf of the board. Having one report issued by the audit committee and a contradictory report supported by the board will not enhance proper governance and protection of investors.'
Sue Almond concluded: 'We were delighted to have such a broad range of stakeholders involved in this first exchange of views on the newly issued audit proposals. We need now to continue this constructive process to make sure that the final measures can deliver the maximum benefits for businesses in Europe.'