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February 7, 2011

EC AUDIT REFORM: In brief

Wide support for fee caps

There is support for a cap on the maximum amount of fee income a single audit client can provide.

According to academics, the maximum limits for remuneration from a single client that currently exist in Denmark 20% and Germany 20-30% do not go far enough to mitigate the risk of economic dependence.

They propose a limit of 10% to ensure that a firm does not become too dependant on one audit client.

 

Alternative ownership models

Many respondents believe alternative ownership structures should be explored to help the mid-tier find ways to grow their firms as long as does not impact upon independence.

Although some EC green paper respondents are against access to third party capital, it is thought that a radical review of rules relating to the ownership and funding of audit firms could encourage new investment in mid-tier firms.

Academics said that more light needs to be shed on firm operations, such as internal quality review procedures and partner remuneration within transparency reports. They add that there should be greater clarity on the composition and ownership structure of networks and firms.

 

Group auditor should have access

EC respondents agree that a group auditor should have unlimited access to documentation across the whole group audit of an organisation.

This would ensure there are no barriers or constraints when conducting a group audit, especially when subsidiaries are being audited by different firms.

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