Spain’s economy ministry is to propose a mandatory audit rotation period of nine years, scrapping the option provided to member states by the EU law to renew the audit engagement through tendering or joint audit, The Accountant has learnt.
The ministry on behalf of its audit regulator, the Institute of Accountancy and Audit (Instituto de Contabilidad y Auditoría de Cuentas or ICAC), is working on draft legislation to implement the EU audit reform, which took four years of contentious debate after it was passed by the European Parliament last April.
On 1 August the ICAC sent the members of a working group committee, formed by different stakeholders of the financial industry, the draft law for their consideration until 20 October when the committee met for a few hours.
A source close to the situation told The Accountant that the draft estates a mandatory rotation period of nine years, despite the EU Regulation on Statutory Audit of Public Interest Entities setting the maximum engagement time of 10 years.
Moreover, the EU regulation introduced two options whereby member states could extend the audit engagement for 10 years by tendering the contract, or 14 years if a joint audit firm is appointed. As it currently stands this draft law renounces to such two options.
The EU regulation also introduced a list of prohibited non-audit services that firms cannot render in order to enhance the independence of the auditor.
However, there is an option available for member states to allow certain tax services and valuation services, as long as they don’t disrupt the audited financial statements, the audit committee is informed and independence is not jeopardised.
Outcry from the profession
The two Spanish professional bodies, the Institute of Auditors (Instituto de Censores Jurados de Cuentas de Espana or ICJCE) and the Corporation of Auditors of the Council General of Economists (Corporación de Auditores del Consejo General de Economistas or REA+REGA), have expressed their outrage at the haste in which the ministry is implementing the EU audit reform.
In a joint statement released this week both organisations said they feel excluded from the process, warning about the risks of rushing the implementation at a time when the European Commission is still issuing interpretations and leading countries haven’t even done a move yet.
The ICJCE and REA+REGA didn’t understand why the ministry is in such a rush since the EU legislation comes into force in June 2016 and Spain’s current legal framework doesn’t require many amendments to adapt to the EU provisions.
The professional bodies felt the ministry has turned its back to the suggestions they sent to the ICAC, which haven’t been adopted in the draft law.
A spokesperson for the ICAC told The Accountant that the draft will be discussed once is published and added that dialogue with the industry will be encouraged.
The spokesperson, however, declined to comment on the concerns raised by professional bodies.
In previous reforms of the national audit law, professional bodies played a more proactive role in the drafting of amendments, but on this occasion the ministry announced plans before the summer to speed up the implementation of the EU audit reform.
Different factors could be behind the rush of the Spanish ministry. One could be a desire to respond to several accounting and audit fiascos of prominent companies such as those of Gowex, Bankia or Pescanova, which still dominate the news coverage of Spanish media.
Professional bodies, however, have argued that these were isolated cases, which have made the audit profession carry the can for few rotten apples within the industry.
Another factor is Spain’s general election scheduled for December 2015. If the government wants to hand the parliament a consolidated text to be voted before the polls, some of the steps the professional bodies are demanding have to be removed.
As the Spanish adage has it, las cosas de palacio van despacio, meaning that important things take their time. The ministry doesn’t seem to agree with that approach so far.