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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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