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February 8, 2011

LIVE BLOG: EC financial reporting and auditing conference

The conference has officially closed with some hard-hitting statements by the EC. The EC appears to be determined to make changes to the audit market but it is hard to predict what these changes will be. The mid-tier have put some additional pressure on the debate by joining forces and encouraging the commission to intervene and dynamise the market.

The Big Four is clearly against mandatory firm rotation, joint audits and, in a way, mandatory retendering. One of the last panelists to speak said there are a small number of investors that ‘care’ and there are concerns whether the people who should ask for more disclosure and transparency are actually interested in doing so.

Thank you for following our coverage and if you have any thoughts you would like to share with us you can always email ana.gyorkos@vrlfinancialnews.com.

 5:22pm“We (EC) won’t leave things as they are,” Faull said.

“We are keeping an open mind at the moment and will look at all your submissions very carefully.”

“We will start working on policies and are hoping to publish a proposal at the last qurter of 2011”

5:17pm“We feel vindicated for starting this debate,” Faull said.

The session has closed and closing remarks of the conference will be made by Jonathan Faull, Director General for Internal Market and Services, European Commission

5:10pm- Investor asks if there is the possibility one of the Chinese firms will become the fifth force in the market. Nusbaum said not in the next year, however, as the government is helping it might be possible this could happen in the future.

The Q&A session is now open.

5:00pm – “I believe the commission should increase the transparency of audit,” Nusbaum said.

4:55pm- “The EC has to discourage bias,” Nusbaum said.  Nusbaum said he thinks the profession must be willing to change and the mid-tier must keep investing “We almost doubled our size since Andersen has collapsed,” he said.

4:50pm- In the UK 40% of the FTSE 100 are audited by one auditor.

“This would have an effect on the market if that firm was to collapse,” Nusbaum warned.

4:40pmLa Via  said that when Andersen collapsed firms there was no serious market disruptions as clients and staff found a new home in a very short space of time.

“Mid-tier did not successfully attract former Andersen clients,” he said.

La Via suggest that the importance of audit services and innovation has an essential role in enabling new entrees in the market. “If we don’t encourage innovation we will find ourselves in a dying industry,” he said.

“The issues discussed here are global and should be discussed globally,” he said.

4:33pm- La Via said the audit function is systemic built on trust, however audit firms are not the same as banks.

4:20pm- Power said the challenge is to create smart purchasing of audits as this is something we are not doing at the moment.

4:15pm- Power said that when Andersen collapsed the uncertainty about the market lasted for a short while.

“Overall there was no market failure,” he said.

He expressed skepticism over the too big to fail and systemic risk.

“I don’t really know if investors care about concentration, I know Ian Richards does, but I’m not sure about others.”

The panelists are:

Vincenzo La Via, CFO of the World Bank Group

Michael Power, Professor of Accounting, London School of Economics and Political Science

Edward E. Nusbaum, CEO of Grant Thornton International

Peter Praet, Executive Director of the National Bank of Belgium, Member of the Management Committee of the Belgian Banking, Finance and Insurance Commission (CBFA)

The panel is chaired by Financial Times correspondent Adam Jones.

The last session of the conference is titled: Too big to fail: how big is the problem? This is a part of the conference which is expected to get most of the attention.

4:00pm- Wright brings the session to a close by saying the internal market must be built and strengthened. “We have to be more forward looking,” he said.

Wright brings the session to a close by saying the internal market must be built and strengthened. “We have to be more forward looking,” he said. Wright said it is time we change the financial services as situations where generations are paying for something they didn’t do is not acceptable.

3:50pm- Panelists dismiss concerns over EU regulation encouraging box-ticking. Røder said this is something we should keep in mind, but I don’t think box-ticking is something  EU regulators would stand for.

3:40pm- The session discusses the future of a European supervision of the audit market. The panelists are welcoming the idea, however they are warning of some obstacles ahead.

Røder said supervision is an evolving process and that firstly the member states have to be united on this topic.

3:20pm- Panelist Maijoor said there should be more information on the quality of audits and regulators should be more candid.

3:15pm- Røder said he thinks more information and facts should be available about the passport for auditors. “There is a lot of work ahead of us if we wish to achieve this,” he said.

Røder said we must address market concentration and also agrees that joint audits should be dismissed without through consideration.

“If my colleges say joint audits work I believe them,” he said.

He also said that audit committees have to communicate about their way of retendering. They must be empowered to make the right decisions and communicate them he said.

3:01pm- De Cambourg said EU audit market must consolidate further. “We must work closer together to ensure we get a greater global voice,” he said.

He said it is time to stop talking about an audit passport and create it. De Cambourg remarked that the market share of the Big Four has become worrying and dangerous.

He also said the possibility of the joint audits is less worrying then market concentration. My colleges don’t find joint audits boring and some say they find them very useful,” he said.

2:52pm- Wright will be asking the panelist about how to create a more dynamic market as suggested by Barnier.  The panelists’ are: Klaus-Heiner Lehne, MEP, Chair in both the Committee on Legal Affairs and the Conference of Committee Chairs Steven Maijoor, Chair of the International Forum of Independent Audit Regulators (IFIAR), Director at the Netherlands Authority for the FinancialMarkets (AFM) Jens Røder, CEO, Secretary General of the Nordic Federation of Public Accountants Patrick de Cambourg, CEO and Chairman, Mazars

Session three will discuss the European Passport for Auditors. The session is chaired by EC former deputy director general for internal market and services David Wright.

2:40pm- Hidalgo shows support for mandatory retendering. He also said audit reports could become shorter and more concise. He also calls for improving communication and calls for separating audit and non-audit services. “Services other then auditing must be discouraged as they can only serve as conflict of interest.”

2:37pm-We need to launch an in depth review in to the audit market. Avoiding ideology and taboos. That is the only way forward.”

2:34pm- Member of the Committee on Legal Affairs and  Rapporteur on the Green Paper Antonio Masip Hidalgo hold his opening address of the afternoon session.

2:25pm- Welcome back. I hope you enjoyed your lunch. As said before we are hoping to hear some more interesting views and debates about where the audit market is headed and what are some of the changes that might soon become a reality. As usual the afternoon session is running a bit late.

The morning session has closed with several attendees still eager to comment on some of the points made. Thank you for following our coverage of the morning session and join us again this afternoon at 2:15pm (1:15pm UK time) for more coverage of the conference. Send in your comments or views of Barnier’s speech to ana.gyorkos@vrlfinancialnews.com 

Enjoy your lunch.

12:52pm- The Q&A session taking place currently at the conference gives a sense of divide among different parties of how to increase auditor independence and tackle the audit market concentration. There is a clear message that something most be done, however mandatory auditor rotation and joint audits seems to be off the cards for most of the panelists.

12:48pm- Haddrill said when asked about giving more power to the regulators said that would not be a good ideas as it would increase government influence.

“I mean we didn’t do well either in 2005 for example.”

12:35pm- In the O&A part of this session chair Richards said that from the investors perspective big firms are safe. He also said that the investors appointment of auditors is an illusion. “Investors do not have a choice in appointing auditors,” he said.

12:24pm- Mouillon was asked by the chair panelist to give his opinion on joint audits. Mouillon said he does not see joint audits reducing market concentration and can actually turn firms against one another.

“There are more cons then pros for joint audits from my experience.”

12:18pm- Chair panelist AVIVA investor Iain Richards said no change in the audit market is not an option for investors.

12:10pm- Jules Muis said he suggest two things: First, putting a ‘bazooka’ through the CFO function. Muis believes CFO’s shouldn’t be judging their own work.  He also suggests changing the regulators reports and only ask them to give an assessment of the companies functioning.

12:03pm- World Bank, former director general and chief internal auditor of the European Commission Jules Muis said it is the tax payers interest that the audit market is properly functioning and why we have to make this right.

12:00pm- De Buck said there is a Big Four bias and what fuels it is their international network and their responsiveness to almost any topic in the world, however we are supporting greater competition in the market.

11:48am- “There should be a maximum level of fees paid by one client to an audit firm,” de Buck said.

11:45am- “The EC shouldn’t force auditors to give forward looking information as that is practically impossible,” de Buck said.

11:42am- BUSINESSEUROPE director general Philippe de Buck said there is a need to better regulate the risk in the audit market.

11:40am- “Lack of corporate governance was one of the reasons that lead to the financial crisis,” Mouillon said.

Mouillon said good corporate governance programmes are essential.

11:35am – “Audit firm rotation does not address concentration,”  Mouillon said.

11:30am – “EC should make audit quality as bench mark above all other suggestions,” Mouillon said. Mouillon said there is a need to balance audit scepticism. Too much scepticism can influence between the company and the auditor which could lead to trouble.Christian Mouillon is global head of assurance at Ernst & Young.

11:22am- “The most important lesson form the crisis is that a new communication has to be developed between auditor and governance,” Peter Naumann said.

11:19am- “We need financial standards that are principle based and integrity. We need management to disclose more,” Peter Naumann said.

11:10am- This is one in a generation opportunity to improve the market Haddrill concludes.

11:06am – “We also need a contingency plan if one of the Big Four fails,” Haddrill said.

11:03am – “We need a dialogue with investors,” Haddrill said.

We mustn’t risk quality in order to increase market competition he said. “We have to put carful thought into how to increase choice in the audit market.”

“Perhaps encouraging banks to tender to Big Four, change the Big Four ownership and ban Big Four only clauses.”

11:00am –  Haddrill said we want investors to learn about the future of the business and we want auditors to challenge management and the boards to see fair accounts and the whole picture. “Companies should also base their reports on transparency and not hide behind legal texts to protect their liability.”

10:58am- “To whom do auditors hold the duty of care is the essential question,” Haddrill said “I agree that there is time for change and we all know change is coming.” “We have to keep a clear perspective on what failed and why it failed in the financial crisis.” Haddrill said we need to bring the value of audit closer to investors.

10:40am – The panelist at today’s first session titled Societal role of the audit and auditor’s independence will be chaired by AVIVA regional head of corporate governance Iain Richards.

The panelist are:

  • Institut der Wirtschaftsprüfer in Deutschland CEO Klaus Peter Naumann;
  • Former Ernst & Young partner, vice president and controller of the World Bank, former director general and chief internal auditor of the European Commission Jules Muis;
  • Financial Reporting Council (FRC) CEO Stephen Haddrill;
  • Ernst & Young global vice chair – Assurance Christian Mouillon; and
  • BUSINESSEUROPE director general Philippe de Buck.

10:32am- “I am not for regulation for regulation sake,” Barnier said

10:30am- “Better international co-operation,” Banier said

10:10am – Barnier said on:

The role of the auditor: “Role of auditors is not clear,” he said. Barnier said auditors must play a lot of roles and they are not supervisors. “Should the auditor’s judgment be restricted by rules or should they look further?

Auditor independence “I was never convinced that the market should regulate itself,” Barnier said. He said independence has to be visible. “You can’t accumulate the role of an auditor, internal auditor and strategic advisor,” Barnier said.

Structure of the market: “The market is very concentrated,” said Barnier. “We need to open the market and we are very in favor of a European passport as long as it doesn’t lead to companies not reporting to their own country regulators,” he said.

SMEs “What is required for a large firm might not be necessary for SMEs and I want their voice to be heard,” he said. Barnier said that with my colleges I want to make the life easier for these companies and simplify SMEs regulation.

10:19am – “We must learn from the crisis” Barnier said

10:17am- Barnier said the conference is happening at the right time as the consultation on the EC Green paper has just finished. “We believe this was necessary and we now have no taboos” he said.

There have been about 700 contributions to the Green paper he said.    

10:10am – Barnier gives an apology for being late and thanks the attendees and organisers of the conference

9:55am – Conference running about 15 minutes late

Good morning and welcome to the second day of the live blog of the EC’s conference on financial reporting and auditing. Today is the day that everyone has been waiting for as the conference is discussing the EC green paper on audit. The conference is about to start in a few minutes with the keynote address by EC commissioner for internal market and services Michel Barnier.

Barnier’s address will be followed by a discussion on the role of auditor (no coffee break in between in case you were wondering).

In the afternoon the conference will discuss the European passport for auditors and the last session of the conference will revolve around the Big Four and are they to big to fail.

If you have any comments on today’s sessions please email me ana.gyorkos@vrlfinancialnews.com.

 

9 February 2011 – Day one of the conference

The passing of Padoa-Schioppa was very sad news to close 2010 and it was a lovely gesture to pay tribute to him in closing the first day of this conference. 

We hope you have enjoyed today’s coverage, some interesting thoughts about IFRS and its future direction. In truth, nothing groundbreaking has happened although it was good to see the incoming IASB chair Hans Hoogervorst and a host of other profession leaders have their say.

Tomorrow will cover EC audit reform and we expect a few more fireworks, starting with Michel Barnier at 9.45am Brussels time. We will be starting proceedings at about 9.30am in Europe.

This is Ana Gyorkos, and on behalf of the International Accounting Bulletin team thank you for following and we hope to enjoy your company tomorrow.

5:03pm – Calviño makes a tribute to Tommaso Padoa-Schioppa who was IFRS Foundation chair prior to his sudden death in November 2010.

4:49pm – Collomb closed the Q&A and said that we are in an interesting situation at the moment where the target is not far, however we have some major challenges still to overcome.

4:54pm – Closing remark: EC deputy director general for internal market and services Nadia Calviño said that 2011 will be a make it or break it year for accounting standards.

“I feel a sense of optimism in this room and I think the people holding the torch now are on a good path to a unified global standard.”he said.

Here’s a bit of live action here for you… it’s almost like you were there. A big thank you to the graphics team in London for putting those live action collage together.

EC Blog

4:40pm – Véron was asked on his views about the increased funding of the IFRS Foundation coming from the Big Four. Veron said that currently the contribution to the foundation is voluntary and that it is worrying the funding of the Big Four has increased in the past years. He said the voluntary contribution might need to be examined to avoid conflicts.

Interesting… I think Hans H might have to do a round of corporate door knocking here, it works for the Salvation Army. So if they don’t want Big Four funding/support, where will it come from?

4:38pm – Picker was asked about how the profession has benefited from IFRS. Picker said IFRS has reduced costs of training and increased accountant’s mobility.

“IFRS enables accountants to work almost everywhere in the world.”

I’m sure accountancts could still do pull beers anywhere in the world without IFRS, but Ruth’s point is that accountants should be able to prepare accounts using the same principes and rules in any IFRS jurisdiction – huge change from yesteryear.

4:31pm – Véron said the EC is not expected to take a stand on IFRS for SMEs (non-listed) and will leave it to member states.

This makes sense really, an SME in the UK is probably a fairly large company in Albania. Countries acorss Europe have different legislation, tax regimes etc to think about.

4:20pmMorshuis was asked about his opinion on IFRS for small and medium size listed companies and he believes there should be a less detailed IFRS for those companies. Morshuis said that for some small Shell subsidiaries it would be easier to have a ‘smaller’ IFRS.

“We don’t thing there is a need for them to report under full IFRS despite being listed.”

Hmmmm… would IFRS for SMEs work?

4:13pm – At the beginning of the Q&A the panelists were asked about the US adoption of IFRS and how their reluctance to converge on consolidation will influence the out come.

Picker said it is hard to say what the US will do and the fact that the FASB does not want to share our view on consolidation is not a good sign. Picker did point out that this morning the conference has heard some positive remarks on the potential US adoption.

Right, first comment of the day and its from B Mattheaus of Germany: “Overcomplification of standards will be harder for the report users to understand so there must be some rationale to safeguard the usability of accounting rules.”

I think Mr Mattheaus is a fan of K.I.S.S. – Keep It Simple Stupid. Thank you for your contribution, please keep them coming. Also admirable use of a word with 7 sylablles, can anyone top that?

The Q&A session is about to start and then closing remarks for the day. We should be wrapping up in an hour so don’t leave that screen.

4:05pm- Schilder said the IAASB has a strong quest for more information and disclosure and that is why they have decided to publish a discussion paper on how to deal with the need for more disclosure.

“People and investors want to see the whole picture.”

Ah yes, but where do you draw the line at the number of disclosures one should see? Do disclosures add clarity or confusion?? This topic is discussed in the IAASB’s discussion paper The Evolving Nature of Financial Reporting: Disclosure and Its Audit Implications.

3:59pm- International Auditing and Assurance Standards Board chairman Arnold Schilder said the board is seeing a very positive attitude towards the adoption of ISAs.

“The accounting world now has a common language.”

3:49pm- Picker said we need to remember that we are only six years into the project of IFRS and we have already created a new language and soon we are all going to speak the language.

That’s pretty nifty work having 100+ countries speaking a langauage in only 6 years. Why couldn’t German be that easy at school?

3:40pm- Ernst & Young global IFRS Services leader Ruth Picker said the challenge for IFRS is to ensure it is applied consistently.

“We have to resolve the consistency of application, adaptation and regulation,” Picker said.

Picker warns that convergence is not a long term solution and it should only be used during the transition prior to full adoption.

I wonder how Ruth feels about some of the carve-outs that arfe currently being proposed in places like India?

3:30pm – Shell vice president group accounting and reporting Paul Morshuis said the converged standards must be based on principals and they must be practical.

“High quality standards must reflect the market, stand the test of time and shouldn’t be so complex that only accountants can read them.”

Morshuis said Shell supports IFRS adoption globally and welcomes discussions to evolve the standard.

3:05pmVéron said the appointment of Hoogervorst as the next IASB chair might give out the wrong signal to the IFRS community as some might interpret it as a European dominance over the standard and the standard setting body.

2:55pm- Bruegel senior fellow Nicolas Véron said the IFRS ‘brand’ should be kept intact regardless of some carve-outs in certain countries.

2:40pmCollomb said the focus now is on how to make IFRS a global standard and assess at what stage we are now. “How is quality of IFRS going to be measured and how to ensure it in the future?” he said.

2:34pm – Opening remarks by Lafarge honorary chairman Bertrand Collomb are just about to start.

2:08pm- The session hasn’t started yet as most attendees appear to still be at lunch. 

Welcome back to the second Session which deals with IFRS as a world-wide standard. Hope you are refreshed and raring to go for some cracking conversation on IFRS. 

The session is expected to discuss:

  •  Is convergence of IFRS and US GAAP an end in itself?
  •  Can we achieve convergence and maintain high quality standards?
  •  Application of IFRS globally: the practical challenge of a consistent approach

13:00pm – And that closes the first half day of the conference, which had a lot of comment from Hoogervorst, perhaps shedding some light on the ideology of Tweedie’s successor. 

Just a quick note, if you would like to add your comments or thoughts to the debate, please email them to ana.gyorkos@vrlfinancialnews.com and I will try my best to get them up there. 

The conference is to continue at 2pm and will continue to debate IFRS. Tomorrow the conference will move onto the EC Green Paper. I’m off to get a sandwich, biscuit and a cup of coffee, I hope you are enjoying this coverage and will join us in an hour’s time.

12:42pmHoogervorst, on the role of fair value, said that some principles have changed and are changing post-crisis, however, the experience has shown that companies that have applied FV have done better in the crisis as they indentified bad assets.

“We mustn’t though ignore market signals as by doing so we are misleading investors.”

12:36pm – A Mazars representative asks if IFRS is not too heavy of a burden for SMEs, regardless of whether they are listed or not?

Hoogervorst responds: “I don’t think we can have a two-tier regime for listed companies. A listed company is a listed company and has the same responsibilities.”

12:23pm – A conference participant said the agenda setting of the IASB (or IRFS Foundation as it is now called) should be up to the IASB trustees and not monitoring boards…. seems to be a bit of friction over IASB oversight here.

12:12pm – At Q&A session Hoogervorst said ‘cookie jar’ accounting should not be used as in the bad times it does not show the right picture of the accounts to the investors. Cookie jar accounting is not in the interest of investors and it should be avoided. So should all talk of cookies as we approach lunch…

11:55am – Aviva investor asks about the responsibility of IFRS in the financial crisis. Hans Hoogervorst responds that IFRS has had to tighten some of the rules on off balance sheet accounting and that the off balance sheet accounting is a greater problem under US GAAP then under IFRS.

“The role of IFRS to encourage a more procyclical view have been modest and the IASB has made some moves to improve that.”

11:50am –  Michel Prada former Chairman of AMF said the accounting standards are becoming ever more complex, which raises concerns over reliability, comparability and financial stability that need to be discussed.

11:40am – US Federal Reserve Board senior associate director and chief accountant Arthur Lindo said the US should adopt some form of IFRS in the near future.

11amHoogervorst is calling for more diverse influence at the IASB, a body that has traditionally been dominated by Europeans and North Americans.

“The IASB shouldn’t be thought of as being owned or belonging to only a few countries.”

Of course Hans is perhaps referring to increasing the relevance of the Asia-Pacific region and other emerging markets to the standard-setting agenda.

10:30amHoogervorst has called for greater transparency in the financial services sector:

“Accounting standards can improve financial reporting by increasing and encouraging transparency… Time shouldn’t be bought by hiding problems”

10:10am (Brussels time) – Hans Hoogervorst, the Dutchman who will replace David Tweedie as IASB chair is now speaking in the opening session.
First Session: Standard Setting, Financial Stability and Prudential concerns

Welcome to the International Accounting Bulletin’s coverage of the EC financial reporting and auditing conference in Brussels. Ana Gyorkos here and I will be following all of today’s events. There are 455 attendees and probably hundreds more who could not make it for various reasons, we understand the conference was oversubscribed.

This widely anticipated event should provide some interesting insights into the EC’s audit reform agenda, as well as IFRS, with some high profile speakers including the incoming IASB chair Hans Hoogervorst and EC Internal Markets boss Michel Barnier.

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