The European Commission published its proposals on changes to audit regulations in November 2011.
Following two years of debate, votes (by the key European Parliament (EP) committees) and negotiation in and between the EP, Commission and Council (the three main institutions involved in EU legislation) preliminary agreement on future EU audit legislation was reached in December 2013. Among other measures, this allows for:
- 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)
- a 70% cap on non-audit services provided to audit clients
- a 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)
- the prohibition of clauses limiting choice of auditor
On 3rd April 2014, the EP voted to adopt the legislation. The Council then adopted the package (regulation and directive) by qualified majority on 14th April.
- After publication in the Official Journal of the European Union, the legislation will enter into force 20 days later and then take effect two years later (i.e. summer 2016)
- Transitional measures for rotation will take effect when the regulation enters into force, i.e. summer 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' in 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 above) that a member state may opt for
- See more information in Deloitte’s April 2014 Governance in Brief paper