European audit market reforms will affect New Zealand and other countries
The European Parliament has passed new audit rules to address investor concerns over the excessive volume of non-audit services, long tenure of audit relationships and the quality of audit communication and this is likely to impact New Zealand subsidiaries and branch operations of these EU companies.
The new rules see:
– capping non-audit services at 70% of the audit fee
– restricting some of the tax and advisory services that a company may obtain from its auditor
– requiring audit rotation at least every 10 years but in certain circumstances this can be extend
– requiring more informative audit reports, and reports by the auditor to the audit committee.
It is thought that while these new laws will help European investors, it will also impact other countries around the world including New Zealand.
Grant Thornton New Zealand’s National Technical Director, Mark Hucklesby said “It’s not a case of if the law in New Zealand will be changed, but simply when.”
“Investors are the ultimate customer of the audit product. They want to be sure that the provision of significant levels of non-audit services by the auditor does not compromise audit quality via compromised independence or reduced professional skepticism.”
In 2013 the estimated global advisory market was assessed at $208 billion, with the combined Big-4 advisory income component being $39 billion.
The 70% capping limit for non-audit services that has been passed will come fully into effect in 2016.
Audit reform discussions are not just restricted to the EU. They are also taking place in the UK, the Netherlands, India and elsewhere in response to investor concerns. It is clear that some companies have noted these concerns and are reacting accordingly, but addressing these concerns in the law ensures that there will be change across the European market and that change will be permanent.
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