Brussels, 13 May 2008
Auditing: Commission issues Recommendation
to strengthen confidence in statutory audit (see MEMO/08/300)
The European Commission has issued a Recommendation
on "external quality assurance for statutory auditors and audit firms auditing
public interest entities". It provides guidance to Member States for
establishing an independent and effective system of inspections on the basis of
the Directive on Statutory Audit. In essence, this Recommendation gives more
responsibilities to the public oversight bodies, strengthens the independence of
inspection teams and enhances transparency on the results of inspections of
individual audit firms.
External quality assurance for the statutory audit is fundamental for high
audit quality. Internal Market and Services Commissioner Charlie McCreevy said:
“It is important that audit quality standards are high in the EU. We
need to continue to improve the quality of audits. New global trends on
inspections also require us to give a prompt European answer. This
Recommendation is certainly a way forward in dealing with these urgent
The Recommendation only deals with inspections of statutory auditors or audit
firms auditing public interest entities, since co-operation between Member
States is a priority with regard to audits of public interest entities.
The main features of the Recommendation:
- It recommends an active role of the public oversight authorities in
inspections. Professional associations can still assist the public oversight
authorities, but should be subject to important safeguards, including
accountability to the public oversight authority.
- The Recommendation invites Member States to clarify that practitioners from
audit firms (peers) should no longer have a leading role in inspections system
and inspections teams.
- It also recommends to Member States to enhance transparency on the outcome
of the inspections in order to improve accountability of the inspection system
towards investors, companies and other stakeholders. The transparency reports
published by audit firms should contain no misleading information in comparison
to the findings of inspections. Major deficiencies in internal controls of audit
firms should be disclosed if an audit firm does not address appropriately the
recommendations for improving the audit quality.
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