EC conference on Financial Reporting and Auditing – Day 2: Audit

Day 2 of the European Commission roundtable in Brussels commenced with a keynote presentation from Michel Barnier (Commissioner for Internal Market and Services).

His opening remarks sent a clear and strong message. He reiterated a view that the 'status quo regarding auditing was not an option'. The EC received 700 responses totalling 10,000 pages and he was currently 'seriously thinking' about the proposed changes. The changes were to support his goal of having a strong single market for Europe.

Commissioner Barnier outlined 5 areas of proposed changes:

1. Clarifying the role of audit – the relationship of audit should not just be with the audited company but with a much broader group, particularly the investors. A view on the state of the health of a company - not just the numbers - is needed.

2. Independence of the Profession – trust of the auditors needs to be re-established. He is looking at the options of mandatory periodic tendering, rotation of audit firms and regulatory approval of auditors for systemic risk companies.

3. Structure of the audit market – the focus on audit share by any firm should have a ceiling and support the French model of joint audits.

4. SME and SMPs – the 'lung for Europe's economy'. He wishes to encourage growth and will consider different levels of requirements for different companies and auditors.

5. Better international co-operation – regulators need to work better together. He commented that Europe's patience was running out with the US desire to converge their accounting standards.

Importantly, the majority of the areas the Commissioner focused on were related to changing and improving the role of the Audit Committee. This is an area highlighted in the Institute’s submissions to EC and the UK House of Lords!

Stay tuned, still more to come!