17 April 2014

Dear members,

Reform of the EU statutory audit market

Earlier this month, the European Parliament adopted the amended Directive on Statutory Audit and the Regulation on specific requirements regarding the statutory audit of public-interest entities. This act brings to an end more than three years of debate and consultation on audit practice and policy that was started in the autumn of 2010 with the release of the European Commission Green Paper on Audit Policy: Lessons from the Crisis.

The amended Directive and Regulation bring in a number of reforms to the audit market in Europe. Two reforms in particular may have extra-territorial implications and should be of interest to the audit profession worldwide:

Mandatory rotation of audit firms; and
Caps on the provision of non-audit services by the auditor

Full details of the reforms are on the European Commission's website.

The Institute has followed and participated in the debate since 2010. Our submission on the Green Paper can be seen here. You may also wish to read the following related reports from our A Plus magazine:

Rotation threats put audit in a spin
Breaking up the big players

The Institute believes that the objective of reform should be to uphold and enhance audit quality. As explained in the submission to the Green Paper, the Institute is of the view that mandatory audit firm rotation is more likely to have a negative effect on audit quality and that more emphasis should be placed on measures such as enhancing the role of the audit committee. This position was also reflected in our 2013 submission to the U.K. Competition Commission's statutory audit services market investigation.

There may not be an immediate or widespread impact on the Hong Kong market or listed companies but inevitably the Hong Kong and China operations of some multinational corporations will be affected by legislative and regulatory changes in Europe. The Institute will closely watch developments in Europe and update you on how this might impact the Hong Kong profession.
   
 

Sincere regards,

Chris Joy
Executive Director
Hong Kong Institute of Certified Public Accountants

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