Deloitte responds to the publication of the European Commission's proposals on changes to audit regulations
30 November 2011
David Sproul, chief executive and senior partner at Deloitte, comments:
“The audit profession has taken to heart important lessons from the financial crisis. We are supportive of measures to enhance audit quality, strengthen the independence of the auditor, and foster competition. But as we have stressed previously, given the extraordinarily challenged global economy, it is critical that proposals regarding the audit regime and regulation should focus on building greater confidence in the capital markets and facilitating economic growth.
“The European Commission for Internal Markets’ focus when it announced the Green Paper was the role of auditors and banks in the financial crisis and the measures required to help prevent a future financial crisis. As a profession we have developed a number of measures in consultation with regulators to address this concern and objective. These include closer communication of risks between auditors and financial supervisors; clearer risk disclosures and reporting by financial institutions; and an improved reporting model for auditors, which reflects their role in reinforcing the public’s trust in the capital markets.
“However a number of the Commission’s specific proposals do not advance its stated objectives and we believe will have significant negative unintended consequences. We do not support proposals such as audit only firms, mandatory rotation and further restrictions on non-audit services. The detrimental effect of such measures on audit quality would affect all sectors but would be most severe for financial institutions. They present the most complex audit challenges, requiring highly skilled and experienced experts with a deep knowledge of the audited entity. Thus, the proposals would be most counterproductive for the very sector that has been the central focus of regulatory reform efforts.
“Further restrictions on non-audit services, creating audit-only firms, and mandating rotation will result in unnecessary disruption and cost, and will not address the objectives of improving audit quality. Further, these wide-ranging proposals would create an audit regime in Europe inconsistent with those in other markets, further increasing complexity and costs for global companies and impacting European competitiveness. We believe the impact of the proposals has not been properly considered and the input of those with the clearest view, including corporate and investor communities, have been largely ignored.
“The legislative process for the development of final regulations is necessarily lengthy and thorough. The views of critical stakeholders such as investors, regulators, governments, the business community, and auditors need to be carefully considered prior to finalising regulation. We look forward to engaging with the Commission, along with other stakeholders, to inform the discussion throughout in order to reach our shared objective of improving audit quality.”
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