This high level briefing is ideal for getting up to speed with EU Audit Reform and what it might mean for your organisation. It contains a summary of the legislation, alongside important information such as which companies are affected and what the consequences might be for businesses. There are also links to a number of more detailed resources.
On 17 June 2016, legislation transforming the professional services market came into effect across the 28 member states that currently make up the European Union (EU). The rules are complex and far reaching, bringing significant changes to the way businesses must manage their professional service providers. It is important that all affected companies gain a firm understanding of the legislation and take steps to ensure compliance.
The baseline legislation has been passed at an EU level, however member states have a range of options available for use in their local implementation. The legislation can be grouped under the following three areas:
Mandatory audit firm rotation (MFR): Companies must change their audit provider at least every 10 years, although member states are able to extend this period to a maximum of 20 years where a public tender is held after 10 years or 24 years for joint audits. The introduction of MFR is staggered and the date by which companies have to change auditors is based on the tenure of their current auditor on 16 June 2014.
Restrictions on non-audit services (NAS): Audit firms are restricted from providing certain NAS to their audit clients. Member states have the option to allow the provision of certain services or to further restrict additional NAS.
The audit committee: Audit committees must have sector-relevant experience and at least one member with expertise in accounting or auditing. They are required to manage the audit tender process and must recommend at least two audit firms to the board, with a justified case for one. The process should be fair and not in any way preclude the participation of smaller audit firms.
Key questions addressed by this briefing include:
• Which companies are affected by the new rules?
• Does the legislation still apply in the UK, given the recent vote to leave the European Union?
• What are the most important considerations for businesses in assessing the impact?
This briefing applies to the EU baseline rules. The final regulatory environment will be impacted by how each EU Member State interprets the legislation and any derogations they choose to implement.
To implement the EU audit legislation, each EU Member State must decide on its local rules before 17 June 2016.