The global accountancy body now hopes that a reasonable agreement can be reached with the Council and urges the Irish Presidency and the Member States not to lose sight of the main objectives of the audit reform: improving audit quality and striking the right balance between reinstating stakeholders’ – especially investors’ - confidence and a competitive environment for businesses.
Sue Almond, Technical Director at ACCA says: 'It is crucial that audit meets the demands of the business world, including those of management, investors and shareholders. Future legislation needs to be workable for businesses while enhancing investors’ confidence. The JURI report prepared by MEP Sajjad Karim reaches a laudable balance, which was not an easy task given the diverging opinions, especially on the controversial issues linked to market structure.'
Sue Almond explains: 'We are particularly pleased with the compromise reached on the role of the Audit Committee. ACCA is a long-standing advocate of strengthening this key body. It is ideally placed to assess the independence and suitability of the external auditor, to make a recommendation for the selection - or renewal - process of the auditor, as well as an informed and transparent decision on the tendering process in the context of the business needs. It is appropriate for the audit committee to provide more transparency, namely in providing the rationale for change - or not - of the auditor on the basis of the ‘comply or explain’ principle. The 25-year backstop auditor rotation position should provide added impetus for audit committees to exercise their role, without being so intrusive that it undermines their responsibility.'
In addition, the JURI report rightly suggests that the Audit Committee should be able to critically assess and approve the provision of additional non-prohibited non-audit services. We believe that the proposed new list of prohibited non-audit services, which is substantially in line with international standards, is sufficiently exhaustive to ensure that independence of the auditor is not threatened, Sue Almond adds.
Sue Almond notes: 'We also welcome the enhancement of the accountability of the external auditor to the audit committee along with suggestions for improved shareholder-auditor engagement.
ACCA is also very pleased with the JURI Committee’s call for audit reports of public interest entities - the so called PIES - to be prepared in accordance with the international auditing standards adopted by the European Union.
'Consistency with international standards is essential, though there is room for improvement at EU level. It is encouraging to see that the compromise text concentrates on the key areas that investors have highlighted. But investors consistently note that they invest globally and so international comparability of audit reports is critical. The International Audit and Assurance Standards Board (IAASB) is engaged in a major project to revise the audit report to increase its communication value, which we support. At ACCA we believe that extended auditor reporting will improve transparency between auditors and investors and help articulate the value of the audit,' Sue Almond points out.
Sue Almond concludes: 'For ACCA, the touchstone of the audit reform has always been about ensuring well-structured audit services, which can be trusted and which can also bring the most value to businesses and the end-users of these services. Audit is only one part of this jigsaw: further progress could for instance be made through enhancing both corporate governance and reporting, namely through non-financial and also integrated reporting. Their development would help reflecting the interconnected nature of economic and financial performance with environmental, social and governance factors.'