The Irish presidency of the EU has presented revised proposals for pan-European audit reform including mandatory audit rotation and a cap on non-audit related fees according to Harris & Co small business accountants offering accountancy services to small and medium sized businesses and any new business start up.
At an open meeting of the EU Council competitiveness council held in Brussels today, there was little agreement between EU ministers on revised proposals from the Irish presidency to reform audit.
The EU Council was reviewing the compromise text of the Irish presidency on audit rotation, and a series of proposals were presented to gathered ministers by session chair, Richard Bruton, the Irish minister for jobs, enterprise and innovation.
The proposals included the introduction of mandatory rotation of auditors with a six-year limit and a nine-year period if joint auditing, creation of a ‘blacklist’ to limit non-audit services to a 70% fee cap and the appointment of ESMA [European Securities and Markets Authority] as the overall oversight body to regulate audit.
Bruton said: ‘We will be working to achieve consensus on this package of measures before the end of the June.’ At this time the proposals will be presented to the European parliament for further debate.
Commissioner for Internal Market and Services, Michel Barnier said: ‘We need political guidelines from the Council to start negotiating with the Parliament… so we do reach an ambitious agreement. I am not opposed to the idea of compromises and progress. I am not dogmatic.’
Barnier expressed support for the Irish presidency proposals, but hinted that a six-year rotation period could be too stringent and suggested a 15-year rotation period for joint audits.
There was mixed reaction from ministers to the Council’s call for a six-year audit rotation period which was felt to be too short, but there was support for the concept of mandatory rotation.
The UK objected to plans for mandatory rotation, but said there could be grounds for some compromise.
UK representative, Stephen Green, minister of state for trade, expressed reservations. He said: ‘On mandatory rotation we could consider accepting mandatory rotation but only if it applied to a more limited group of systemic companies than are currently covered by public entity definition, and secondly if there was a much longer period before mandatory rotation was required.
‘We support the European parliament proposal of 25 years provided there was a tender after 14 years – this was an approach that we would be comfortable with. Whether or not we would be comfortable with a shorter term than 25 years, this requires more deliberation but certainly it needs to be a lengthy period.’
The UK also opposed any cap on non-audit services.
‘We believe that the role of the ESMA in pan-European audit regulation is not the right approach – ESMA doesn’t have the expertise at board level,’ said Green.
‘We think this would risk generating a highly activist regime of pan-European audit regulation which we don’t consider to be necessary. We support the alternative lighter touch for the enhanced EGAOB [European Group of Auditors" Oversight Bodies] approach – this is a more proportionate approach. "This [audit reform] is an extremely important matter and it is too important to rush it. We need to make sure we have the right approach coming out of these deliberations.’
The French said that "mandatory rotation is a good thing in so far as it does not jeopardise what we already have in France. The idea is to do the same kind of thing that we are discussing here – reduce the familiarity between the auditor and the client".