In a move that will have a broad impact on companies operating globally, the European Commission recently published a Green Paper on “Audit Policy: Lessons from the Crisis,” launching a consultation process which could lead to new European legislation on statutory audit and related matters in 2011-2012. The Commission explicitly stated its intention to assume international leadership on these matters in the context of the G20.
The Commission’s proposals, if enacted into law, would affect not only European-based companies, but also U.S. companies with investments in Europe. U.S. subsidiaries subject to statutory audit requirements in Europe would be directly affected, and US parent companies would be affected by the indirect impacts on the audit of consolidated financial statements.
The Green Paper is important because it suggests, among other things, audit policy changes and related actions that could:
- Disenfranchise audit committees of the board and shareholders with respect to the appointment, oversight and remuneration of external auditors and the provision of non-audit services;
- Impose new costs and increased audit complexity on companies by requiring mandatory rotation of audit firms and/or mandatory retendering of the audit on a fixed schedule;
- Impose new corporate reporting, communication and audit requirements in areas such as social and environmental responsibility;
- Expand communications between the auditor and the audit committee of the Board, as well as external stakeholders;
- Address issues of competition and choice in the audit market; and
- Substitute regulation for management and market-based decision-making.
This month, USCIB submitted comments on the Green Paper. We have also addressed some of these issues through our work on corporate governance, capital markets and investment in BIAC and ICC. While new legislation may be inevitable, it is important that business work at these early stages in the EU’s process to help assure that the outcome is cost-effective, protects shareholder rights, preserves audit quality, and does not unduly burden international companies.
Staff contacts: Justine Bareford-Badimon and Stephen Canner
USCIB comments on the EU Green Paper on Audit Policy
