European Commission

DG Internal Market and Services

B-1049 Brussels

Belgium

6th

December 2010

Dear Sir or Madam

European Commission Green Paper: Audit Policy: Lessons from the Crisis

Chartered Accountants Ireland („the Institute‟) is Ireland‟s longest established and largest

professional accountancy body on the island of Ireland. Founded in 1888 as the Institute of

Chartered Accountants in Ireland, Chartered Accountants Ireland is a „recognised accountancy body‟

in company law in both the Republic of Ireland and the United Kingdom. Practically all the top

professional accountancy practices in Ireland, including the „Big 4‟ are member firms of Chartered

Accountants Ireland and are regulated by the independent operational board – the Chartered

Accountants Regulatory Board – established by Chartered Accountants Ireland in 2007 to regulate

its members and member firms. Our regulatory functions are subject to oversight by the Irish

Auditing and Accounting Supervisory Authority in the Republic of Ireland and the Professional

Oversight Board, an operating board of the Financial Reporting Council, in the UK. Chartered

Accountants Ireland has approximately 20,000 members of which 35% work in public practice.

The Institute recognises the importance of the debate in the context of the current economic crisis in

relation to the role and scope of audit, and audit quality. We are anxious to participate in this debate

in a positive and constructive manner. The European Commission‟s intervention in this issue is

indeed timely. We would emphasise the global nature of statutory audit and the audit market and the

needs of the international corporate entities that the larger audit firms fulfil. In this regard, we would

encourage the Commission to work through international mechanisms in seeking solutions to issues

that are identified through its consultation thereby ensuring global acceptance.

The concerns noted in the Green Paper in relation to the relevance of audits, the „expectation gap‟

which exists in relation to the nature and level of assurance provided by audits, and the systemic

importance of the large audit firms are significant. We agree that action is required to allay such

concerns.

For its part, the Institute has been playing a positive role in facilitating an informed debate in Ireland

on the role of audit. In June 2010, we hosted a forum on „The Future of Statutory Audit‟ with a

panel of speakers representing a variety of stakeholders – regulators, standard setters, preparers,

users, and auditors. We also intend to publish a Discussion Paper in the near future which will

identify potential options for change. We anticipate hosting a second forum for all stakeholders in

January 2011 to develop the debate here further, in advance of the EU Conference scheduled for

February 2011.

Measures proposed as a result of the deliberations initiated by the Green Paper should be evidence

based and proportionate. Efforts need to be made to ensure in so far as possible, that proposals are

well designed to address issues in a substantive fashion. It is also important to ensure that measures

aimed at issues which arose principally in the banking sector are appropriately focussed, and do not

become broad impositions on entities in general without valid reasons. In that regard, we believe

that when proposing certain new requirements it will be necessary to distinguish, in particular,

entities such as particular types of financial institutions that are regarded as systemically important

and at whom change is primarily focussed. Our responses to the questions raised assume this

distinction will be made.

In formulating our responses to the Green Paper we have found that in a number of areas, possible

solutions or suggestions focussed on an enhanced role for audit committees. In some respects, this is

no surprise given the nature of the relationship that exists between companies, boards and auditors

and the differing responsibilities each party has. It also reflects the fact that audit is but one

component in a matrix that also includes financial reporting, governance and ethics, and the role of

external supervisors and regulators. For all, there are undoubtedly „lessons from the crisis‟ that need

to be learned.

Our responses to the detailed questions raised in the Green Paper are set out below. We look

forward to the outcome of the Green Paper consultation and to participating in the next phases of the

Commission‟s processes. Further information in relation to any of the matters raised in our response

can be obtained by contacting Aidan Lambe, Director, Technical Policy at Chartered Accountants

Ireland at aidan.lambe@charteredaccountants.ie or +35316377307.

Yours sincerely

Paul O‟Connor Ronan Nolan

President Chairman, Green

Paper Working Party

1. Do you have general remarks on the approach and purposes of the Green Paper?

Chartered Accountants Ireland acknowledges that a crisis of confidence has occurred, particularly in

the banking sector and that one element of this relates to the role and scope of the statutory audit.

We are strongly committed to taking a constructive approach to the issues raised in the Green Paper

and to potential changes that may arise from the Commission‟s consultation.

We agree with the overall aims of the Green Paper which are to ensure the continued provision of

high quality audits and to restore confidence in the audit process as a key element in restoring

confidence to capital markets.

We believe that, in considering „whether‟ and „what‟ change is necessary to the role of statutory

audit and auditor, it is appropriate to make a distinction between entities that are „systemically

important‟, other public interest entities, and private entities. Undoubtedly, there is merit in

considering and debating what, if any, additional measures might be taken as regards the audits of

such systemic entities and what additional information might be provided by auditors and by audit

committees.

Finally, we would encourage the Commission, when coming forward with any new proposals as a

result of this consultation, to make recommendations that are evidence based, taking account of the

expressed needs of users of financial information and the legal structures under which audits are

conducted.

2. Do you believe that there is a need to better set out the societal role of the audit with

regard to the veracity of financial statements?

The role and purpose of the audit needs to be properly understood by society. At present, there is

clearly an „expectation gap‟ and any efforts aimed at improving understanding of an audit and, its

scope, are to be welcomed.

The question, however, does raise a valid issue which is worthy of debate and that is whether, given

the statutory role of the auditor, there is (or should be) a duty of care on the part of the auditor that

goes beyond the traditional relationship between the auditor and shareholders.

Recent events have demonstrated that there are entities that are of such systemic importance that

there may need to be a different approach taken to the audits of such entities, particularly given the

wider stakeholder environment in which they operate. The Institute recognizes that this poses a

significant challenge, particularly in light of the current legal framework within which audits are

conducted. There is a need for society to debate the desirable scope and nature of audit for such

entities.

3. Do you believe that the general level of ‘audit quality’ could be further enhanced?

Any measures that result from the Commission‟s consultation process must result in enhancement of

audit quality. Achieving better audit quality is a journey of continuous improvement and Chartered

Accountants Ireland is supportive of efforts aimed at improving confidence on this issue.

An obvious measure that could be taken fairly quickly to underpin quality is the implementation of

ISAs throughout the European Union.

Providing greater transparency around the audit process itself and the activities of audit regulators

are also viewed as assisting the promotion and improvement of audit quality. For example, public

reports by regulators on the outcomes of individual audit firm inspections can have a positive impact

on confidence in audit quality.

4. Do you believe audits should provide comfort on the financial health of companies? Are

audits fit for such purpose?

At present, the purpose of the audit is to provide an „opinion‟ on an entity‟s financial statements at a

point in time. In terms of the question, it is first important to reach common agreement and

understanding of what is meant by „financial health‟. However, recent events have demonstrated

that, at least for institutions, such as certain banks, that are of systemic importance, there is a greater

need for the provision of information to assist in the assessment of the continuing sustainability of

such entities.

We believe there are possibilities in terms of expanding the reporting role of the auditor to provide

some form of assurance on narrative information provided by companies.

There is considerable merit in examining an enhanced role for audit committees in this area,

particularly in terms of the information reported to shareholders on going concern assumptions, key

representations made by management, and discussions on risk-related issues. Disclosures might also

include commentary on off balance sheet activities, loan losses, and accounting judgements.

While such initiatives will require further research and discussion, we would envisage a model that

requires companies, particularly those that are of systemic importance, to provide additional

disclosures on specified issues (such as those referred to above) with the auditor, in turn, providing a

form of assurance on such information.

One possible approach would be that of the „Operating and Financial Review‟1 requirement that has

applied previously in the United Kingdom. This model could serve as a useful starting point for

discussion of how such a model might be introduced.

Finally, we would caution against requiring some form of auditor involvement in so-called „forward

looking information‟ or profit forecasts. We believe this would pose some real challenges in terms

of the provision of assurance by auditors which may ultimately prove to be insurmountable.

5. To bridge the expectation gap and in order to clarify the role of audits, should the audit

methodology employed be better explained to users?

The Institute is supportive of any initiatives aimed at improving the understanding of the role of

auditors.

As we have referred to in our opening comments, there is a further expectation gap around the nature

and purpose of financial statements which is also worthy of debate. Complex rules and principles

are often not understood by users of financial statements who find it increasingly difficult to

appreciate fully what it is such statements represent.

Audit methodologies applied by audit firms, of necessity, are extremely technical and detailed.

Whether an explanation of such methodologies would be helpful on this issue is certainly worthy of

consideration and the audit profession should be prepared to explore how such additional

information could be provided.

1 The OFR was a mandatory reporting requirement for Directors of UK-quoted companies to set out their analysis of the

business, with a forward looking orientation to assist members of the company in assessing the strategies adopted by the

company and the potential for those strategies to succeed.

The OFR was built around a number of principles, including:

- The OFR is the responsibility of the full Board of Directors;

- There should be a formal process for preparing the OFR;

- The OFR should be relevant and meet the recommendations of existing pronouncements on content;

- The OFR should be an integral part of the corporate reporting process;

- The process should involve explicit consideration of whether the OFR content is reliable, balanced and understandable;

- There should be continual evaluation and improvement of the company’s performance as described by the OFR.

We believe a more general initiative is needed to address the expectation gaps in financial reporting

and auditing that would involve audit regulators and supervisors in addition to auditors. Annual

reporting by such agencies, rather than simply highlighting adverse findings, might also address

„expectation gap‟ issues. This might be particularly helpful to media commentators reporting on

financial reporting and audit issues.

Audit committees also have an important role to play in this area. Significant dialogue on critical

issues does take place on a regular basis between the audit committee and the auditor. Such

exchanges also address issues such as audit scope and the audit methodology applied. Of course,

such communication is already a requirement set out in ISA 260 „Communications with those

Charged with Governance‟ but is perhaps not widely appreciated nor understood. We consider it is

worth exploring how audit committees might comment to shareholders on such discussions and how

they are satisfied as to the methodology applied.

6. Should professional scepticism be reinforced? How could this be achieved?

„Scepticism‟ is a core value of the auditing profession and has been most recently articulated by the

Auditing Practices Board in its Discussion Paper „Auditor Scepticism – Raising the Bar‟ (August

2010). While scepticism is a quality that needs to be continually reinforced and emphasized, an

ongoing challenge is how to evidence its application. Indeed, the expression of scepticism often

takes place on a „real time‟ basis and so is not always evidenced. One example of this is the

frequency with which financial statements of entities require some form of amendment as a result of

the audit process.

While we would welcome further discussions and debates on how to improve or evidence

scepticism, it is not immediately obvious to us how, for example, audit quality might benefit were a

more „confrontational‟ approach to be adopted by the auditor.

As with our answer to question 5, there is merit in exploring how improved dialogue between

auditors and audit committees and, in turn, between audit committees and shareholders might

provide deeper insights into the application of scepticism. Views of oversight bodies will also be

relevant in this regard.

7. Should the negative perception attached to qualifications in audit reports be

reconsidered? If so, how?

A qualification in an audit report is, by its very nature, negative. Indeed, it is perhaps the key

mechanism by which the application of scepticism may be evidenced.

Where, perhaps, negative perceptions do arise is around a „modification‟ to the standard audit

opinion normally issued by the auditor. Such „modifications‟, when they relate to banks in

particular, have the potential to give rise to unintended consequences. For that reason, in many

jurisdictions, advance consultation with supervisory authorities is often a requirement.

We are supportive, however, of efforts aimed at achieving a better understanding of such

modifications, and also the current form audit report with a view to making it more intelligible to

stakeholders. In particular, we recognize that the binary nature of the existing form of report has

been criticized.

Again, we believe there is also a role for audit committees to take the lead in explaining to

shareholders the issues that have resulted in such a modification.

We agree that there is indeed scope for improving the nature of the information contained in audit

reports, and we welcome ongoing efforts at international level to address this issue and would

encourage the Commission to engage fully in this global discussion.

8. What additional information should be provided to external stakeholders and how?

In answering this question, our focus is on entities that are deemed systemic in nature and perhaps

other entities considered as having a public interest aspect to their operation. Our answer to question

4 is relevant where we referred to the Operating and Financial Review that was once a requirement

in the UK as providing an appropriate vehicle for providing such additional information. An

alternative to this would be a formal report from the audit committee which could include, for

example, commentary on the entity‟s choice of accounting policies and on particular accounting

estimates used. There is also scope for more comprehensive disclosures by companies around risk

management and governance.

We recognize that such proposals may require legislative change, no doubt following further

research and consultation.

9. Is there adequate and regular dialogue between the external auditors, internal auditors,

and the audit committee? If not, how can this communication be improved?

From our experience in Ireland, we believe that there certainly is adequate dialogue between these

parties. In addition, where established, dialogue should also take place with the „risk committee‟.

As referenced to above, the framework within which such dialogue takes place is ISA 260.

If it was felt necessary, such an approach could be provided for in legislation. Alternatively,

adoption of ISAs would equally achieve this.

We are supportive of further consideration into how such dialogue might be communicated by audit

committees to stakeholders.

10. Do you think auditors should play a role in ensuring the reliability of the information

companies are reporting in the field of CSR?

This is an emerging area in terms of both reporting by entities and the role of the auditor. We would

encourage the Commission to engage with international initiatives on this issue as a common global

solution to reporting and assurance is essential.

11. Should there be more regular communication by the auditor to stakeholders? Also,

should the time gap between the year end and the date of the audit opinion be reduced?

If the question is asking whether there needs to be more dialogue between the auditor and the entity,

we are satisfied that the level of dialogue that exists at present is sufficient.

The duty to keep stakeholders informed of relevant matters pertaining to that entity rests with the

entity itself and its directors.

In terms of the timing and frequency of statutory information to be made public, this is a decision

primarily for securities regulators although we do believe that current reporting requirements are

appropriate. We would not support, however, a move to quarterly reporting in the absence of

evidence on the advantages and benefits this would bring.

On the existing reports issued by entities – half yearly reports, preliminary statements etc, of course

it is possible to require the provision of some form of review and opinion by auditors.

12. What other measures could be envisaged to enhance the value of the audit?

Some possible options are;

Improved sharing of information between auditor and shareholders/other stakeholders e.g.

Additional explanatory information in audit reports to include company specific information

identifying key estimates, judgements and policies applied by directors in preparing financial

statements;

Placing an obligation on audit committees to report publicly on those key issues and areas

that were subject of discussion with the auditor together with an opinion from the auditor on

the consistency of such disclosures with own knowledge;

Establishing an appropriate framework to permit the auditor to respond to questions from

shareholders at the AGM.

Enhanced communication by the auditor to address aspects of risks and controls in corporate

governance;

More positive role relating to narrative reporting („front part‟ of annual report) – better

communication of both the entity‟s reporting judgements and related matters and of the audit

process;

Improved communication with regulators, also involving trilateral meetings with Audit

Committees and reporting on regulatory returns and other appropriate „benchmarking

information‟ (see also question 26).

13. What are your views on the introduction of ISAs in the EU?

We are fully supportive of the introduction of ISAs throughout the EU. We believe this will have a

positive impact on audit quality.

14. Should ISAs be made legally binding in the EU? If so, how? Should there be a similar

process to IFRS endorsement? Or via a Recommendation, Code of Conduct?

We understand that many countries within the EU have already adopted ISAs via their own local

legal and regulatory requirements. The Commission needs to give some thought to the mechanism

for adoption of ISAs.

We would not support the possibility of „carve outs‟ and believe it is preferable to engage fully and

comprehensively with the global standard in the formulation of standards.

15. Should ISAs be further adapted to meet the needs of SMEs/SMPs?

ISAs have effectively applied to all statutory audits of Irish entities for a number of years (through

ISAs (UK and Ireland)). There is no evidence that there has been a difficulty in applying these ISAs

to smaller entity audits.

We are of the view that ISAs are already capable of being adapted to smaller audits.

16. Is there a conflict in the auditor being appointed and remunerated by the audited

entity? What alternatives would you recommend in this context?

Undoubtedly this system for appointment and remuneration of auditors can be perceived as giving

rise to issues around independence. We recognize that, particularly for entities that are of systemic

importance, further measures that go beyond existing safeguards may be necessary to address such

perceptions. We will approach the further debates on this matter in a constructive and positive

manner.

We do believe, however, that there is an inherent requirement to place the appropriate level of trust

in the integrity of the key participants in such decisions at present. Responsibility generally for the

awarding of the audit contract and fixing remuneration is best entrusted to those charged with

governance. In this regard we would be supportive of audit committees providing more detailed

disclosures relating to the appointment of the auditor and the criteria employed to make such

decisions.

There is a need for greater interaction between audit committees and shareholders with perhaps the

confirmation of appointment of the auditor being approved by way of formal resolution at Annual

General Meetings by way of emphasizing the role of shareholders and the fact that auditors report to

them.

17. Would the appointment by a 3rd

party be justified in certain cases?

As referred to in our answer to question 16, we do not support a general requirement that auditors be

appointed by a third party. However, as we also acknowledge, there may be a role in the case of

systemic institutions for some involvement by a third party (such as bank supervisors), for example

by permitting a veto over a proposed appointment.

Delegating appointment itself to a third party may conflict with the legal responsibilities of audit

committees and may give rise to potential issues relating to liability and the duty of care.

18. Should the continuous engagement of audit firms be limited in time? If so, what should

be the maximum length of an audit firm engagement?

The imposition of any new requirements should be based on firm evidence that such changes will

result in a demonstrable improvement in audit quality. Studies into the impact of mandatory auditor

rotation such as that of Boconni University in 2001 on the experience in Italy clearly demonstrate

that, in fact, audit quality suffers.

Chartered Accountants Ireland fully supports the necessity of there being a robust challenge to the

reappointment of an auditor. One idea that has emerged in our own deliberations is placing a formal

obligation on audit committees to consider on a predetermined periodic basis whether the audit

should be subjected to a formal tender process. Where the audit committee decides against a

tendering process, it should be required to justify this decision to shareholders at the Annual General

Meeting.

19. Should the provision of non-audit services by audit firms be prohibited? Should any such

prohibition be applied to all firms and their clients or should this be the case for certain

types of institutions, such as systemic financial institutions?

This issue, in particular, raises a public perception and confidence issue that is perhaps particularly

relevant in the case of entities that are of systemic importance.

The issue of non-audit services has received particular attention recently, most notably during

debates when framing the Statutory Audit Directive and more recently, in Ireland and the UK, by the

Auditing Practices Board in its consultation.

We believe that it is important to recognize that the current APB Ethical Standards for Auditors

include prohibitions of a range of services, restrictions in the case of many others, and a requirement

to consider potential threats and appropriate safeguards in relation to permitted services. We support

the APB in its continuing review of this area, and do not believe that an outright prohibition would

be appropriate or in the public interest.

20. Should the maximum level of fees an audit firm can receive from a single client be

regulated?

Such a requirement already exists in Ireland via application of the Ethical Standards for Auditors

issued by the Auditing Practices Board which also reflect the requirements of the IFAC Code of

Ethics. Again we would encourage the Commission to adhere to international norms on this issue.

21. Should new rules be introduced regarding the transparency of the financial statements of

audit firms?

If audit firms are established as incorporated entities, then the normal rules regarding transparency of

financial information apply to these as they do to other companies.

The „Transparency Report‟ provisions of the Statutory Audit Directive are only now taking effect

throughout the EU and require disclosure by public interest entity auditors of significant information

regarding audit firms and how they operate, including financial information. We believe there needs

to be time to allow the impact of this new requirement to be evaluated properly before proposing

new measures in this area.

22. What further measures could be envisaged in the governance of audit firms to enhance

the independence of auditors?

Although the Green Paper refers to the UK Code on Audit Firm Governance, the firms that apply

this Code typically are significantly larger with a more complex client base than exists in most other

jurisdictions within the EU. While there may be merit in the application of the Code at network

level, there is no evidence to suggest that its adoption will either improve the perception of

independence or, more importantly, improve audit quality.

Audit firms, unlike most other non-financial sector entities, are subjected to significant external

oversight and regulation. We believe this is the most effective way of encouraging the highest

standards in firm governance and assuring independence.

23. Should alternative structures be explored to allow audit firms to raise capital from

external sources?

The Green Paper suggests a primary reason for allowing external investment in audit firms would be

to help meet future liability claims. We are not convinced that an external investor would find such

a rationale particularly attractive.

There may indeed be valid and long term reasons for external investors being attracted to invest in

audit firms. While we would be supportive of voluntary measures permitting such investment,

particular safeguards would need to exist to protect independence and to avoid any diversion of

attention from audit quality which may be susceptible to pressure to deliver expected returns to

external providers of capital.

If one of the aims of such a measure is to ensure the ongoing viability of audit firms, limiting auditor

liability may be another way of tackling that particular concern.

24. Do you support the suggestions regarding Group Auditors? Do you have any further

ideas on the matter?

We consider that much of what is suggested in the Green Paper as regards group audits is already

addressed in the recently revised ISA 600.

The Commission might also wish to consider the impact of local data protection requirements and

other legal issues that may act as impediments to allowing the group auditor all necessary access and

how these might be overcome.

25. Which measures should be envisaged to improve further the integration and cooperation

on audit firm supervision at EU-level?

The Institute believes that closer cooperation at European level as regards supervision of the larger

audit firms appears desirable. This would help align inspection processes and enforcement action

and ultimately may lead to pan-EU inspections of these firms rather than these being conducted on a

national basis, as at present.

Such a mechanism must, however, be adequately and fully resourced by people with sufficient skills

and expertise to appreciate the full complexities associated with the application of auditing standards

to major international corporates.

26. How could increased consultation and communication between auditors of large listed

companies and the regulator be achieved?

This question is particularly relevant where entities are considered systemic in nature, particularly

those in the financial sector. We fully agree that there needs to be more and improved

communication between auditors and, in particular, financial sector regulatory agencies. We see

such communication as very much a two way process. There needs to be „openness‟ by both parties.

There is also a role for the entity itself in such dialogue. Meetings may also be of a tripartite nature.

We would support, in particular, an international approach to achieving such improvements.

27. Could the current configuration of the audit market present a systemic risk?

We would acknowledge that there indeed exists „concentration‟ at the higher end of the audit market.

While the disappearance of one of the larger firms would raise systemic issues, these would not be of

the same nature nor as widely felt as would the loss of a significant financial institution.

Undoubtedly, some form of contingency arrangements need to consider such a possibility. This is a

particular issue that audit regulators and oversight bodies could usefully engage in.

The auditor liability issue represents a significant problem in many jurisdictions and is one area

where action by the Commission could help avoid such an eventuality.

28. Do you believe that the mandatory formation of an audit firm consortium with the

inclusion of at least one smaller, non-systemic audit firm could act as a catalyst for

dynamising the audit market and allowing small and medium-sized firms to participate

more substantially in the segment of larger audits?

As well as striving to achieve the highest standards possible in audit quality, the Institute believes

that it is vital for Europe to assist its corporates to maintain cost competitiveness in all aspects of

their operations, particularly in current circumstances.

While many jurisdictions already have joint audits on a „permissive‟ basis, the Institute does not

support the suggestion that mandating audits to be conducted on a joint basis achieves the desired

objectives outlined in the paragraph above. Indeed, such an approach may very well result in

additional costs in terms of management time, coordination issues as well as impairing quality.

Therefore while we have no issues with companies being able to opt for joint audits on a voluntary

basis, any mandating of this should be considered only if evidence based.

29. From the viewpoint of enhancing the structure of audit markets, do you agree to

mandatory rotation and tendering after a fixed period? What should be the length of

such a period?

To a large extent this question is answered also by our response to question 18. The Institute very

much supports the role of the audit committee in the appointment of the auditor and in deciding

whether and when to seek alternatives.

We are not supportive of the suggestions made in the question as we are not aware of evidence

which provides a rigorous underpinning of these. Indeed, we believe that such an approach may

negatively impact audit quality.

30. How should the ‘Big Four bias’ be addressed?

We have identified a number of possibilities to address this issue.

Recent moves in the direction of publication of audit firm inspection reports by oversight

bodies will provide greater transparency to the users of audit services around the issue of

audit quality, and should have the potential to enhance confidence in a wider range of audit

firms.

A form of „EU certification‟ of firms might provide further assurance to users.

We believe so called „Big 4‟ contractual clauses should be banned.

Measures could be considered to address the existence of a Big 4 bias among financial

supervisors. While we do not have an obvious remedy to this, undoubtedly the existence of

such a bias remains an issue.

Positive measures need to exist to provide incentives to others to compete with the larger

firms. The „deep pockets‟ syndrome may have a significant influence on the choice of

auditor, evidencing again the need for liability reform.

31 Do you agree that contingency plans, including living wills, could be key in addressing

systemic risks and the risks of firm failure?

See also answer to Question 27. The role of the audit oversight agencies is central to this issue and

we welcome any debate on the matter.

Any initiatives in this regard, should be international, led by IFIAR and/or IOSCO.

32 Is the broader rationale for consolidation of large audit firms over the past two decades

still valid? In which circumstances could a reversal be envisaged?

The original impetus behind the previous mergers among the larger audit firms was a business

imperative to meet the needs of the global entities to whom they acted as auditors. These mergers

have facilitated significant investment in the necessary upskilling of human resources and

investment in technology that would have otherwise been difficult to achieve.

We would have serious concerns that any attempt to force a „break up‟ of these firms would cause

significant disruption for major global companies and have a detrimental impact on audit quality.

33. What in your view is the best way to enhance cross border mobility of audit

professionals?

We believe this has been adequately catered for in the Statutory Audit Directive.

34. Do you agree with ‘maximum harmonisation’ combined with a single European passport

for auditors and audit firms? Do you believe this should also apply for smaller audit

firms?

Yes. Although we believe further time and evidence is needed to assess the impact of the Statutory

Audit Directive.

In the Green Paper, the content of education and training of auditors has only been generally alluded

to in relation to “maximum harmonisation” with a “European passport” for auditors, and the creation

of a European-wide registration of statutory auditors with common professional qualification

requirements. The Paper does not appear to specifically address the relevance of education and

training to the performance of high quality audits, the need to harmonise education and training to

effectively increase mobility, and the need to continue to maintain high standards in the education

and training of statutory auditors of small and medium-sized firms to hinder further market

concentration.

We wish to highlight the real progress that has been made through the Common Content Project (a

project in which this Institute is a founding member) in developing high quality benchmarks for the

education and training of statutory auditors, harmonising professional qualification requirements for

statutory auditors in the EU among the participating accountancy bodies within the major EU

member states, and ensuring that the education and training for all of these statutory auditors is of

equivalent quality.

The Common Content Project recognises both the similarities and differences needed in the

education and training of statutory auditors by not seeking to unify educational and assessment

structures and delivery systems, but to harmonise the educational content for those areas that are

common (IFRS, ISAs, ISQC 1, IFAC Code of Ethics, management accounting, strategy and business

management, financial management), and to only provide a framework for those areas that are

national in content (national accounting law and standards, national auditing and ethical

requirements, business law, tax law, etc.). This system allows optimal harmonisation without losing

the strengths of the national qualifications, which is entirely in line with the principal of subsidiarity

of the European Union.

35. Would you favour a lower level of service than an audit, a so-called limited audit, or

‘statutory review’ for the financial statements of SMEs instead of a statutory audit?

Should such a service be conditional depending on whether a suitably qualified (internal

or external) accountant prepared the accounts?

We consider that the above proposal has the potential to add to existing confusion around the role

and purpose of audit. We are of the view that „an audit is an audit‟. The current regime already

established in EU law whereby a company is subjected to audit or, if it meets local legislative

requirements, may opt for „audit exemption‟ works well.

Other assurance services are available on a voluntary basis and which often meet user needs.

36. Should there be a ‘safe harbour’ regarding any potential future prohibition of non-audit

services when servicing SME clients?

We do not support the prohibition of non-audit services. In circumstances where full audits are

conducted, normal independence rules should apply.

37. Should a ‘limited audit’ or ‘statutory review’ be accompanied by less burdensome

internal quality control rules and oversight by supervisors? Could you suggest examples

of how this could be done in practice?

See our response to question 35.

38. What measures could in your view enhance the quality of the oversight of global audit

players through international co-operation?

We believe there is potential for enhanced cooperation of oversight bodies through IFIAR.

Ultimately the aim should be to arrive at a regime of mutual reliance between global regulators. We

are supportive of Commission efforts towards achieving this goal.