European Audit Committee Leadership Network, May 2017
In the wake of the financial crisis that began about a decade ago, the European Union (EU) stepped up its policy-making on the auditing of public-interest entities (PIEs). EU member states are today implementing the 2014 Audit Regulation and Directive (ARD), which took effect on 17 June 2016. As part of this effort, the Committee of European Auditing Oversight Bodies (CEAOB) was established in July of that year to serve as a forum in which national audit regulators can cooperate on implementing the ARD and improving audit quality.
On 20 April 2017, in one session of the European Audit Committee Leadership Network (EACLN) meeting in Paris, Ralf Bose, chair of the CEAOB, joined members to discuss the organization’s mission and agenda, the challenges of audit policy in Europe, and audit regulators’ partnership with audit committees.
In conversations before, during and after the meeting, EACLN members and Mr Bose discussed the CEAOB as an organization and its specific activities, with a focus on the following key points:
The CEAOB is a coordinating body rather than a regulator
The CEAOB is a body that facilitates coordination and information sharing among national audit regulators. It contributes to effective cooperation between regulators, with a view to maximising the effectiveness of the EU legal framework on audit and enhancing investor confidence by improving audit quality. The CEAOB has established subgroups to address the ARD’s requirements and is also continuing the work of predecessor bodies. It does not have the authority to impose binding requirements, and the European Commission retains the power to promulgate official interpretations of the rules. Nevertheless, the CEAOB intends to serve as a forum for resolving auditor oversight implementation issues and making regulations more consistent and effective.
Mandatory rotation continues to present challenges, but inspections are improving
While mandatory audit firm rotation is already bringing benefits such as greater innovation, variance among the national rotation periods may oblige multinational companies to have different auditors at certain foreign subsidiaries, leading to more complexity and restricted choices for non-audit services. While the CEAOB has little ability to effect legislative change, the European Commission is reviewing some aspects of the ARD. The CEOAB and its constituents have made progress in the area of audit firm inspections, where there has been widespread adoption of a common audit inspection methodology (CAIM) and the establishment of a single database of inspection findings.
Dialogue with audit committees creates an opportunity to improve audit quality
Audit policymakers and regulators seek more communication with audit committees. The requirement that regulators report on audit committee performance is aimed at understanding the audit committee’s contribution to audit quality, rather than controlling it. Audit committee chairs underscored their desire for more information from regulators about inspections. Many participants said more dialogue, particularly trilateral conversations among audit committees, regulators, and auditors, would be valuable.