BRUSSELS: Indications of a possible softening
of the tough rules proposed by the European Commission for the
auditing sector are coming from Brussels if a working document from
a key MEP is anything to go by.

The document comes from the rapporteur
(committee co-ordinator) for the crucial Legal Affairs Committee
Legal Affairs Committee (Juri), which, together with the Economic
and Monetary Affairs Committee (Econ), will set the tone for the
final legislative outcome of the EC’s proposed reform.

The rapporteur, British MEP Sajjad Karim,
summarises his position that “any reform must help resolve the gap
that exists between what auditors are asked to do and what some
stakeholders and citizens generally understand the audit process to

Karim is due to formerly put forward a series
of options to committee MEPs on 10 July.

In his working document, he implies a
relatively neutral stance on the mandatory firm rotation. Here,
Karim “invites further debate on the appropriateness of mandatory
rotation in view of the representations made so far”. 

This is typical of a fairly open-minded
approach to the main issues, which include the role of audit
committees, auditor independence, joint and shared audits and so
on. Karim’s document is subject to revision.

Ian Dilks, the global leader of public policy
and regulatory affairs at PwC, has also seen the document and
believes that Karim takes a harder stance against the controversial
audit-only firm proposal. Dilks says Karim expresses the opinion
that he does not believe in this remedy, while Karim himself states
that “he considers that further work may be necessary to
satisfactorily designate services”.

Dilks points out that the International
Auditing and Assurance Standards Board (IAASB) recent consultation
document lines up with Karim’s line on improving communication with

Karim advises the EU Parliament to consider
“how best to further develop the proposals of the EC to ensure that
the audit report retains significance for investors and

Henry Irving, head of the Institute of
Chartered Accountants of England and Wales’ (ICAEW) audit and
assurance faculty, tells International Accounting Bulletin
that Karim’s report sees “both sides of the argument and wants to
stimulate further debate”.

As far as the tightening up on non-audit
services, Irving comments that Karim thinks aspect needs more
thought to get away from “such hard and fast rules” as proposed by
the EC. Irving refers to an “expectation gap” between what auditors
actually do, and what citizens and investors expect.

Stress is placed on the functioning of audit
committees, both by the ICAEW, and the Brussels-based Federation of
Accountants (FEE). In a recent discussion paper, European
Federation of Accountants (FEE) refers to differences in the
function of the committees across Europe. It believes that “a more
harmonised approach to audit committees is achievable”.

The audit reform legislative process in the
European Parliament is expected to continue throughout this year,
possibly even longer.