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Audit is an integral part of the financial reporting environment which contributes to the reliability and stability of financial statements. Its importance is reflected in statute which seeks to improve the quality of statutory audit across the EU. Recent changes to the legal framework are based on two legislative instruments: a 2014 Directive amending the existing 2006 Statutory Audit Directive and a 2014 Regulation on specific requirements regarding statutory audit of public-interest entities, which become applicable in mid-2016, although some specific provisions will apply later.
After four years of intense discussion, landmark reform to EU audit legislation was finally approved in April 2014. The new legislation amends the 2006 statutory audit directive (2006/43/EC) and introduces regulation of PIE audits. It aims to improve audit quality and restore investor confidence in financial information, an essential ingredient for future investment and economic growth. It seeks to better clarify the role and reinforce the independence and the professional scepticism of the statutory auditor; facilitate cross-border statutory audit services in the EU; contribute to a more dynamic audit market in the EU; and improve the supervision of statutory auditors and the coordination of audit supervision by competent authorities in the EU. Stricter requirements are introduced for the audit of PIEs given the potentially greater impact on society of misstatements.
The new legal framework is based on two legislative instruments: a Directive amending the existing Statutory Audit Directive and a new Regulation on specific requirements regarding statutory audit of public-interest entities. The Statutory Audit Directive definition of a public interest entity includes entities listed on a regulated market in a member state, banks and insurance companies but also allows member states to designate other entities as public interest. The legislation outlines organisational requirements of statutory auditors and audit firms; reinforces public oversight of the audit profession and improves the sanctioning regime. Specific requirements for PIEs include the mandatory rotation of statutory auditors and audit firms every 10 years; the creation of a list of non-audit services that the statutory auditor or audit firm cannot provide to the audited entity; limitations on fees charged for non-audit services; enhancement of audit committee; developing dialogue between statutory auditors, audit firms and supervisors of PIEs; and the requirement that from 2016 all firms that audit public interest entities must be inspected independently of the profession.
"Overview of developments and implementation of the acquis communautaire relating to the statutory audit" by Juan Maria Arteagoitia,Policy Officer, Audit Policy Unit, Directorate General Internal Market and Services, European Commission