EU audit reform rules come into force
New EU audit rules, aimed at promoting high-quality audits in larger businesses throughout the EU and enhancing investor trust in the financial information of companies, came into force last week.
The new regulations came into force on 17th June and are being implemented in the UK by the Department of Business, Innovation & Skills (BIS) and the Financial Reporting Council (FRC). The main effects will be to oblige large companies to tender their statutory audit every 10 years and to change their auditor at least every 20 years.
The use of technology in accountancy can help businesses of all shapes and sizes get through different types of audit with a minimum amount of stress, but the new rules apply only to those requiring statutory audits.
Not every business in the UK is required to undergo a statutory audit, but they are required of many businesses, such as banks, brokerage companies and insurance companies, that have to comply with specific financial regulations. The new EU audit legislation applies specifically to public interest entities, or PIEs, which include those governed by law and listed on a regulated market, credit and insurance entities, and organisations that might be of significant public relevance because of the nature of their business, their size or number of employees.
As well as requiring relevant firms to switch their auditors, the new rules also place strict limitations on the type of non-audit services that a company’s existing auditors can provide. This is aimed at shaking up the relationships between big businesses and their auditors and could also serve to open up the market. According to research by BDO, around £10 billion of both audit and non-audit accountancy work could change hands over the next 10 years. In particular, this could provide a big opportunity for accountancy firms outside “The Big 4” to grab non-audit work that would provide a conflict for existing auditors.
Gilly Lord, PwC’s UK Head of Regulatory Affairs, said: “It is unlikely that these new rules would fall away in the event of the UK voting to leave the EU in next week’s referendum.”