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April 3, 2014

European Parliament votes in favor of audit reform

By Vincent Huck

The European Parliament (EP) today passed the EU audit reform with 332 votes in favor, 253 against and 26 abstentions.

The EP approved the agreement reached in trialogue negotiations between representatives of the European Parliament, the Council of the European Union (EU Council) and the European Commission in December last year and endorsed by Juri, the EP’s Committee on Legal Affairs, in January.

The reform introduces a number of measures for public-interest entities (PIE). PIEs will be required to change auditors every 10 years. The period can be extended by up to 10 additional years if tenders are carried out, and by up to 14 additional years in case of joint audit.

The reform introduces a 70% cap on the fees earned for non-audit services rendered to an audit client, therefore an audit firm would not be able to tender for non-audit services worth more than 70% of the audit fee.

The reform also brings some changes to the auditor’s report which will have to be published according to international auditing standards. For auditors of PIEs the text requires audit firms to provide shareholders and investors with a detailed understanding of what the auditor did and an overall assurance of the accuracy of the company’s accounts.

However member states will have some flexibility in terms of implementation, as they could decide to introduce shorter tendering and rotation period. As well as lowering the cap on the fees earned for non-audit services to audit clients.

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The reform still has to be approved by the EU Council. Most of these provisions are to take effect within 2 years of the package’s entry into force, but the restriction on fee income from non-auditing services is to take effect within 3 years.

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