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November 25, 2013

The clock is ticking for EU audit reform

By Vincent Huck

A report by the pan-European media network EuroActiv last week suggested the trilogue negotiations on the EU audit reform including representatives from the European Parliament, the Council of the European Union and the European Commission, which took place last week, ended in a deadlock, however IAB found some different opinions.

According to EuroActiv, the Council under the Lithuanian presidency, has been pushing for a system of rotation based on companies’ size and whether they use joint-audit. EuroActiv reported that the parliament opposed these requested changes and this has caused a ‘logjam in the negotiations’.

However the Lithuanian presidency spokesperson dismissed this idea: "In the context of new system of rotation ‘the size of the company’ is not being discussed. The Committee of Permanent Representatives (Coreper) distinguished public interest entities between systemic (credit institutions and insurance undertakings) and non-systemic firms. The size of the firm does not play a role in the rotation in the Council compromise text."

The presidency spokesperson also told the International Accounting Bulletin (IAB) that so far the negotiation had been on mandatory audit rotation and possible simplification to the rotation system.

The latest version of the Council’s compromise text suggested mandatory firm rotation on a 10-year basis. The proposals allowed for some exceptions such as 15-year mandatory rotation for the audit of credit institutions and insurance undertakings in case of joint audit; 20-years for audits of credit institutions and insurance undertakings in case of joint audit; and 20-years for the audit of other public interest entities in case of public tendering or joint audit.

Grant Thornton International director Nick Jeffrey said that it was too strong to say there is a deadlock in the discussions as the EuroActiv report suggested. He believes that the negotiations are following their course. "I don’t think there is a deadlock," he said. "And the whole point of the trialogue is that it is a negotiation so it is about discussing the three positions and finding a common ground to move forward."

Jeffrey added that he was optimistic about the trialogue: "The various parties seem to be in a position where we can get to an agreement in the near future and I’m hopeful that the three parties can reach an agreement for meaningful reform."

Nevertheless the clock is ticking as Jeffrey explained to the IAB in a previous interview; if no agreement is reached by the end of February 2014 the reform could come to a standstill due to the European Parliament elections in May.

The negotiations will resume on the 4 December.

Related link:

Mandatory audit firm rotation likely to hit EU companies

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