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7/29/2019 Summary Kpmg
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Summary
The paper begins with the reasons for reforming the EU auditing process, primarily stating them
as amendments to financial reporting, and realizing the true essence and aim of auditing, among
others. It then goes on to state the objectives of the audit reform performed by EC which
included aims such as clarifying the auditors role, upgrading the supervision of auditors, and
consolidating the professionalism of the auditor. The EC also issued a number of supplementary
proposals as part of the reformation of the audit market. These included mandatory audit firm
rotation,restrictions on non-audit services being the primary and secondary ones.The paper then points out that after issuing its formal proposals, a complex legislative process
will start which will include decision-making powers being transferred to the Council, reports
prepared by Council/EP committees and reading processes likely to take a minimum of 18-24
months. The paper is then marked by Mandatory Audit Firm Rotation and Tendering
Requirements with reference to term for Public Interest Entities (PIEs) and mandatory tendering
process requirements.
Moreover, the article comes up with proposed restrictions on non-audit services for a PIE client
pertaining to permitted related financial audit services in the EU limited to specified imperatives,Cap on fees for related financial audit services10% of the entitys audit fees, and others.Furthermore, the composition and responsibilities of audit committees have been stated. These
incorporate factors like non-executives or shareholder-appointed members for most PIEs, and
responsibilities such as greater responsibility for supervision of the audit andthe appointment
and dismissal of the auditor. There are also pointers with regard to composition of largest audit
firm networks in the EU including the fact that the largest audit firm networks may be prohibited
from providing non-audit services to any PIE within the EU, thus potentially having to become
audit-only within the EU.
A number of alterations to auditor reporting were also enforced with form and content
requirements for report to shareholders and report to audit committees. Then, there are other
proposals stated with respect to new requirements for the use of ISAs, requirement for audits of
small entities removed, requirement to establish independent audit oversight bodies, and
definition of a Public Interest Entity (PIE) redefined in its scope.
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The primary response of the reforms was promising and proved to be a huge achievement of the
EC. There was a great deal of resentment from related parties and elsewhere. Therefore, there is
a long way to go in terms of the legislative process because of the associated uncertainty. Focus
must be shifted to other factors like importance on corporate governance especially with
communications between Audit committee and regulators, audit firms must invest in aptitude
and technical skills to maintain and upgrade quality, and the regulation should focus on the scope
of the audit and not on market structure and competitive force.