In its desire to fix the financial reporting system in the aftermath of the financial crisis, the EU issued controversial proposals on the role of audit in November 2011 designed to address:\n\n The expectation gap between what stakeholders expect of an audit and what auditors actually do;\n The perceived need to enhance independence of auditors as a means to improving their professional skepticism; and\n The need to counter market concentration and lack of choice in the audit market.\n\nKey among the proposals are the following:\n\n Mandatory rotation of audit firms after six years, which can be extended to nine years for joint audits;\n Mandatory audit tendering that must include at least one non-large firm;\n Prohibitions on auditors performing certain non-audit services including large firms must separate audit activities from non-audit activities;\n Prescribed form of auditor’s report that can be up to four pages in length, and a longer and more detailed report for the audit committee; and finally,\n Audits must be conducted in accordance with International Standards on Auditing, as long as ISAs are in conformity with EU regulations.\n\nMany (and not just auditors) breathed a sigh of relief when the EU did not include requirements for mandatory joint audits; but some of the other proposals may be a bitter pill to swallow, for example, mandatory audit firm rotation – see my earlier post on the PCAOB’s proposal for mandatory audit firm rotation.\nSo, will the EU proposals be adopted and, if so, how will they impact Canada? Will the PCAOB or IAASB issue similar proposals? Hard to say at this point. What is known is that in January the IAASB decided it had to accelerate its own auditor reporting project if it is to develop a global antidote. And one would expect the AASB to follow suit.\nWhat are your thoughts on the EU proposals? What do you think Canada should be doing – major surgery or some preventive maintenance? Email me\n \nEric\n \nConversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.