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Fears of a rushed agreement emerge as EU audit reform nears end

The trialogue on the EU audit reform could result in a rushed agreement, which could potentially be "detrimental to the internal market," the International Accounting Bulletin has been told.

The third round of negotiation between the European Parliament (EP), the European Council and the European Commission (EC) was supposed to take place tomorrow (Wednesday) while several technical meetings are taking place throughout the week.

However, the main meeting Wednesday has now been canceled, likely due to no sufficient basis for negotiations.

Federation of European Accountants chief executive officer Olivier Boutellis-Taft told the International Accounting Bulletin he was concerned that the three parties will rush into an agreement due to what he called a 'negotiating fatigue' around the meeting table.

"It is clear that they are trying to agree as soon as possible, this is both welcomed and dangerous," he said. "There is a risk due to time and political pressure that people start agreeing on something for the sake of agreeing on something."

As previously reported in the IAB the Lithuanian presidency at the European Council is coming to an end, and parliamentary elections taking place next year could postpone the reform indefinitely.

The main issue Taft explained is that because the three parties "don't agree on the fundamentals they start horse trading and brokering a deal, and this always leads to the wrong kind of deal".

Mandatory rotation and non-audit services
The main two points of disagreements amongst the negotiating parties are around mandatory audit rotation and prohibition of non-audit services to audit clients.

Taft said that there is a consensus that audit rotation will become a reality in Europe but he is anxious that in order to reach an agreement the regulation will set the rotation period as a maximum, leaving the freedom to the member states to choose the term of the rotation.

"This means that we will have a different rotation period for each jurisdiction across Europe and that can only be very detrimental to the internal marker," he said. "It's like using the regulation to disharmonies the internal market, which will completely unpractical for businesses."

The second topic of disagreement is about further restrictions on providing non-audit services to audit clients by accounting firms.
"That is more important to me than rotation as it will create a massive administrative burden for firms and their clients," Taft said.

He told IAB that all parties had agreed on the concept of a black list of services that shouldn't be offered to audit clients. However he EP has been pushing to align such a list with international standards, while the Council was in favor of a European list with the right for each country to add on to the list. "So we are at risk of having 28 different lists," Taft said.

Invited to comment on these matters a spokesperson for the Lithuanian presidency told the IAB: "These information do not really reflect the state of play. Member States consider this dossier as a package, no discussion yet took place with the European Parliament on the political level of the overall package. So, nothing is agreed until everything is agreed."

The private nature of the trialogue negotiations has led to a large amount of rumors and suppositions in the past month. What seems to be clear at this stage is that if there is a reform, mandatory audit rotation and further restrictions on non-audit services to audit clients will make their way into European regulation, the how and when are more uncertain questions to answer.

Whether the reform becomes a reality or not, the debate which has now being going on for three years is coming to an end for the great satisfaction of businesses as Taft explained: "We have spent enough time on the discussion and it is time to agree. It has had a very negative impact because it has led to postponing a number of investment and recruitment decisions. It is time to relieve the profession and businesses from the uncertainties that this all discussion is creating."

 

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