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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.

12:42pm
Hoogervorst, 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.

11am
Hoogervorst 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.

10:30am
Hoogervorst 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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