Summary Of The EC Legislative Proposals On Audit Policy

 
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Introduction

This briefing provides an update on the proposed legislation being considered by the European Commission (EC) and debated in the European Parliament (EP) and the Council of Ministers (Council) which could significantly affect the relationship between businesses and their auditors in Europe.

The proposals were released by the EC on November 30, 2011 and affect Public Interest Entities (PIEs) as defined below. We have provided a summary of these proposals below. These are important issues for us as auditors but also for you and all stakeholders in the capital markets. This document provides a short summary of the EC Legislative Proposals and some of our thoughts on these proposed changes.

Context

While the enactment of these or other proposals into law would have no direct impact in Canada, Canadian regulators and standards setters are closely monitoring the developments in Europe, as well as those in the U.S. coming from the Public Company Accounting Oversight Board, and considering the implications, if any, for Canada. The views and experience of the Canadian business and investor communities will be important input into those considerations.

At this stage, these are only proposals.The process for approval involves substantial dialogue and discussion which we expect will change the final form of any legislation. The Legislative Proposal on Audit Policy forms part of a 'suite' of proposed legislation put forward by the EC to address perceived weaknesses in the financial services sector in the wake of the financial crisis. The proposals also include measures relating to corporate governance, reporting practices and credit rating agencies (CRAs).

Key points:

The proposed Regulation is radical in terms of its scope and the measures proposed. We expect that some of the proposals will be discarded altogether and others will be substantially revised. The proposals have generated significant levels of opposition across a broad stakeholder group, including industry bodies, the EP, the governments of the EU Member States, the audit profession and a number of regulators. The European proposals do not reflect the views of the majority of those consulted on the Green Paper on Audit Policy (issued in 2010) nor those of the EP. The EC proposes legislation but it does not have the power to enact it - this is a joint decision between the Parliament and the Council. Summary of the Legislative Proposal

The following summarizes the key proposals...

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