Following the agreement between the European Parliament, the Council of the European Union (EU) and the European Commission on the EU audit reform in December, the lead parliamentary committee on the reform, the Committee on Legal Affairs (Juri), has passed both the directive and the reform trialogue document.
This was the last step before the directive and the regulation are passed on to the European Parliament for a vote in February.
Juri has been working on the audit reform brief since the end of 2011 when it was passed on the initial document by the European Commission.
"Reform of the audit market has been long overdue and the proposals that were voted through today are unprecedented. This draft piece of legislation will have positive ramifications, not just for the audit market, but for the financial sector as a whole. We are rebuilding confidence one step at a time," Juri member Sajjad Karim said.
The trialogue agreement determines compulsory rotation of public interest entities' (PIEs) auditors after 10 years, after which period it allows the possibility for member states to allow the auditor or audit firm to continue audit of the same PIEs up to the maximum duration of 20 years where a public tendering is conducted.
The agreement also proposes a 70% cap on the fees earned for non-audit services rendered to an audit client, therefore an audit firm would not be able to tender for non-audit services worth more than 70% of the audit fee.
The Association of Chartered Certified Accountant technical director Sue Almond said most elements of the texts strike a balance between bringing back stakeholders' confidence and a competitive environment for businesses.
"We now hope for a smooth final endorsement from the two co-legislators before the European elections in May. The next challenges are now in the hands of the member states, especially regarding a timely, consistent and proportionate implementation of the directive, ensuring that legislation is workable and is not subject to unnecessary gold plating," Almond said.
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