ACCA (The Association of Chartered Certified Accountants) has submitted its contribution to the European Commission (EC) consultation about the three pillars of corporate reporting - Corporate Governance, Audit and Supervision.
It has also issued a series of recommendations to constructively engage with policy and decision-makers, alongside key stakeholders in evaluating the range of solutions available, in the public interest.
ACCA strongly supports the EC approach to consider the three pillars of high quality and reliable corporate reporting as part of the wider financial reporting ecosystem.
Mike Suffield, director of professional insights at ACCA says: ‘Improvements on corporate governance, statutory audit and supervision should take place in a coordinated way, as all three can be mutually reinforcing towards improved quality. We also commend the EC’s multi-stakeholder approach, as stakeholders in each pillar do play an important role towards the sustainable improvements of the quality of the wider financial reporting ecosystem.'
ACCA supports the development of specific quality indicators for corporate reporting, statutory audit and their supervision by the EC.
Mike Suffield explains: ‘We believe that specific quality indicators can be a useful high-level mechanism for benchmarking and measurement of headline aspects for the three pillars. We recommend our reports Tenets of good corporate reporting , Tenets of good corporate governance and Tenets of a quality audit as a source of such possible indicators.’
ACCA also agrees that improving the quality of the wider financial reporting ecosystem would support the objectives of the European Green Deal relating to climate, energy, transport and taxation. ACCA’s thought leadership paper Tax as a force for good: Rebalancing our tax systems to support a global economy fit for the future recommends actions for policy and decision makers and for businesses, such as using the tax revenues to reduce taxes on labour and expand social protection. This lays the ground for global coordination, where the EU could play a key role.
Mike Suffield adds: ‘We endorse the EC’s objective to place on an equal footing and integrate financial and sustainability reporting, which supported by the auditor’s involvement in both, provides a more accurate and fuller picture of an enterprise’s value. ACCA has published several recent policy papers and reports that supports this position’*.
Regarding corporate governance, ACCA considers that is an area for improvement and supports further harmonisation at EU level, especially in areas such as audit committees and boards duties.
‘We particularly recommend giving company boards an explicit responsibility to establish effective risk management and internal control systems for the preparation of corporate reporting, including as regards controls for risks of fraud and going concern, as well as transparency about the effectiveness of the companies’ risk management and reporting on the actions undertaken during the reporting period. There should also be more specific guidance on qualifications for directors, especially from the ESG perspective’, Mike Suffield says.
On audit, ACCA believes that the existing EU audit regulation on auditor / audit firm rotation allowing for flexibility in its implementation has resulted in diverging rules among member states. It therefore calls for greater harmonisation and supports limiting the number of Member State options in the EU Audit framework to ensure consistency across the EU.
For ACCA, there is currently insufficient evidence that joint audits would positively contribute to audit quality and believe that the focus of any audit reform proposals should aim to improve audit quality rather than purely increasing competition per se.
While currently audit reports are informative, ACCA argues that there’s room for improvement, particularly in the areas of fraud and going concern.
‘This aligns with our recommendations for governments to consider how the communication channels between auditors and shareholders could be enhanced, to help narrow the knowledge and expectation gap for both fraud and going concern as noted in our recent report Closing the expectation gap in audit: the way forward on fraud and going concern: a multi-stakeholder approach’, Mike Suffield notes.
Finally, ACCA considers that audit quality issues identified in the EU consultation can be attributed only to some extent to deficiencies in the EU legal and supervisory framework, and that additional, more stringent regulation will not necessarily lead to higher audit quality.
Mike Suffield explains: ‘We would rather suggest more emphasis on the implementation and further harmonisation of the existing EU framework, and would also welcome initiatives to help increase audit quality via learning and educational experience within the audit profession, such as the creation of a database of fraud case studies at EU level. We also believe that there’s scope for the role of the Committee of European Auditing Oversight Bodies (CEAOB) to be developed and strengthened to underpin greater consistency across members states in audit inspection approach and methodology.’
Mike Suffield concludes. ‘ACCA also recalls the utmost importance of consistency and alignment of the various directives and initiatives, to enable the whole chain of actors to plan ahead and implement constructively.’
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Notes to Editors
*ACCA published several recent policy papers and reports linked to sustainability that supports this position*, including
· Principles for Connected Corporate Reporting
· Climate action and the accountancy profession: building a sustainable future
· Rethinking risk for the future
· Invisible threads: communicating integrated thinking
· Professional accountants changing business for the planet: a guide to natural capital management.
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