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EU audit reform

Background

  • The European Commission published its proposals on changes to audit regulations in November 2011
  • Nearly two and a half years later the EU Audit Directive and Regulation were published in the Official Journal of the EU on 27th May, becoming part of EU law
  • They entered into force on 17th June 2014

Timing

  • The Regulation will apply directly two years from the date of entry into force
  • 17th June 2016 is also the deadline for implementation of the Directive by Member States
  • Transitional measures for rotation, however, took effect when the regulation entered into force in June 2014. They require audit firm rotation within 6 years for existing audit mandates of 20 years’ duration or more and within 9 years for mandates of 11 to 20 years’ duration. Where the auditor-client relationship is less than 11 years' duration, the auditor may continue until the end of the initial maximum period (that may vary in length per member state, but is no longer than ten years) plus any extended period (see below) that a member state may opt for

Key measures

  • Mandatory firm rotation for auditors of public interest entities (PIEs) at least every 10 years (member states may extend this to 20 years where a public tender is conducted after the first maximum period, or to 24 years where a company has joint auditors during the extended period)
  • 70% cap on non-audit services provided to audit clients
  • List of prohibited non-audit services, including tax advice and services linked to the financing and investment strategy of the audit client (but with a member state option to allow certain tax services, providing they have no direct / an immaterial effect on the audited financial statements)
  • Prohibition of clauses limiting choice of auditor

Resources

 

Useful links

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