Other available languages: FR
Brussels, 17 December 2013
Commissioner Michel Barnier welcomes provisional agreement in trilogue on the reform of the audit sector
I welcome the agreement reached this morning between the European Parliament and EU Member States on the reform of the audit sector. This is a first step towards increasing audit quality and re-establishing investor confidence in financial information, an essential ingredient for investment and economic growth in Europe.
Although less ambitious than initially proposed by the Commission, landmark measures to strengthen the independence of auditors have been endorsed, particularly in the auditing of financial institutions and listed companies. This will ensure that auditors will be key contributors to economic and financial stability.
With the agreement, audit firms will be required to rotate every 10 years. Public interest entities will only be able to extend the audit tenure once, upon tender. Under this measure, joint audit will also be encouraged. Despite the extension of the rotation period, this principle will have a major impact in reducing excessive familiarity between the auditors and their clients and in enhancing professional scepticism.
The new rules also provide innovative tools to limit the risk of conflict of interest. To avoid the risk of self-review, several non-audit services are prohibited under a strict ‘black list’, including stringent limits on tax advice and on services linked to the financial and investment strategy of the audit client. In addition, a cap on the provision of non-audit services is introduced.
Taken together, the agreed measures will considerably strengthen audit quality across the European Union. In this regard, I particularly welcome the agreement on the harmonisation of the international standards on auditing (ISAs).
On the cooperation between audit supervisory authorities, I regret that ESMA has not been endorsed as the core structure for coordination but I am pleased that it has been granted an initial mandate on international cooperation.
I congratulate the European Parliament, in particular the Rapporteurs Sajjad Karim and Kay Swinburne and the shadow Rapporteurs the Council, and successive EU Presidencies (Denmark, Cyprus, Ireland and Lithuania) for this major achievement.
It is now high time for auditors to meet the challenges of their role – a societal role.
I trust that once final details are reflected in the text and formally endorsed by the College, co-legislators will also approve the text in coming weeks.
The financial crisis highlighted serious shortcomings in the stability of the EU economic and financial system. Auditors play an important societal role by providing stakeholders with an accurate reflection of the veracity of company's financial statements. However, a number of banks were given clean bills of health despite huge losses from 2007 onwards. In relation to the real economy, inspection reports from the Member States revealed lack of professional scepticism by auditors, misstatements and a lack of fresh thinking in the audits of major companies because of the average long-lasting relationship between the auditor and their clients.
Taken all together, the agreed measures ensure that auditors will be key contributors to economic and financial stability through increased audit quality, stronger independence requirements and more open and dynamic EU audit markets.
The key elements of the new rules include:
1. A clarified societal role for auditors
2. A strong independence regime
3. A more dynamic and competitive EU audit market
The political agreement reached this morning is subject to technical finalisation and formal approval by the co-legislators.
For more information