New EU Audit reforms passed in European parliament
The new audit reforms have been passed in the European parliament on Thursday last. The European politicians voted in favor of the reforms that will see large-listed companies putting their audit contracts out to tender once every 10 years.
Under the new rules listed companies are required to change their auditors every ten years. A company may be eligible to get this period extended by a further ten years if tenders are carried out, and by 14 years if the company appoints more than one firm to carry out the audit. There is also a 70% cap on fees from non-audit work.
The UK regulators have imposed similar rules. In October 2013, the Competition Commissioned introduced mandatory requirements for companies to tender every ten years, with those that tender less frequently than five years required to report in which financial year they plan to put the audit engagement out to tender.
Within the new audit reform certain non-audit services, such as tax advice and services linked to financial and investment strategy have been banned altogether. The black-list of prohibited services is designed to limit conflicts of interest in instances where auditors are involved in decisions impacting the way companies are managed.
Following Thursdays vote in plenary, the audit package must be formally adopted by the Council. The publication of the new rules in the Official Journal of the European Union is expected in the second quarter of 2014.
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