Preliminarily agreement reached on the EU audit reform
Finally a framework of EU audit reform was preliminarily agreed yesterday. A last minute deal was reached between politicians saving the reform from more setbacks.
The framework of EU audit reform was preliminarily agreed yesterday during the final discussion between the Lithuanian EU Council presidency and the European Parliament, which will see companies forced to change their auditors every ten years, with the possibility of audit tenures extended if certain criteria are met. It is still subject to a final agreement by member states later in the week. The European Parliament is optimistic that the majority of member states will approve the audit reform.
Talks had been called off earlier this month by British MEP, Sajjad Karim, because of disagreements over the package of legislative measures. Read more about this in our previous blog Talks over the EU 10 year audit rotation have been put on hold
The new framework of EU audit reform will see listed companies having to change their auditors at least every 10 years. There is an option to extend this period by a further 10 years if tenders are carried out and by 14 years if the company being audited appoints more than one firm to carry out the audit.
Under the rules, a 70% cap on the fees generated for non-audit work will be introduced, though certain non-audit services, such as tax advice and services linked to financial and investment strategy have been banned altogether.
Originally proposed by EC internal markets commissioner Michel Barnier in 2010, the reforms are intended to improve audit quality and restore investor confidence in financial information after auditors gave a number of banks a clean bill of health prior to them requiring tax payer-backed bailouts.
Now that the audit reforms have been provisionally completed the next step will be how to impose them.
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