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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.