ICAS fully supports the need for the European Commission to address the issues of auditor independence and perceived conflicts of interest in the aftermath of the financial crisis.
However, ICAS questions whether certain of the key audit policy proposals, published by the European Commission today (November 30) will achieve the EC’s intended aims.
Anton Colella, Chief Executive of ICAS, said:
“We would like to see increased choice in the FTSE 350 audit sector and in equivalent capital markets across the EU. Mandatory audit firm rotation, however, does not provide a guarantee of increased choice and runs the risk of reducing audit quality.”
ICAS is also concerned that the measures potentially impose an extra burden on businesses who would need to change their auditors every 6 years. We would prefer for companies to be required to state their policy on audit tendering and to have to comply or explain on that policy. We believe that in practice this would amount to major audits being subject to mandatory retendering every 10 years or so.
ICAS also opposed the ban on audit firms providing non-audit services to their audit clients.
The level of non-audit services provided by audit firms to their audit clients in the UK has decreased considerably in recent years. The audit committee is best placed to determine what services the company should choose to source from its external auditors.
Anton Colella added, “Smaller listed companies in particular may be unduly impacted by such a prohibition at a time when business growth is key particularly given yesterday’s downgraded economic forecast.”
“There is undoubtedly a long road ahead as these proposals work their way through the legislative process - you can rest assured that we will be heavily engaged in trying to ensure that the end result is not an unnecessary burden on business. ”