The EU’s economic and financial affairs council yesterday agreed on a draft directive updating rules on the audit of company accounts, which will be adopted in its forthcoming meeting.
The new directive will require audit firms that carry out statutory audits of public interest entities to provide a detailed report to the public that gives an insight into the audit firm and the network to which it belongs. The report must include the date of the last quality assurance review, polices on continuous education requirements and a breakdown of fees.
Audited companies will have to disclose total fees paid to the statutory auditor or audit firm, broken down by fees for audit services, other assurance services, tax services and other non-audit services.
Parliamentary secretary Tonio Fenech yesterday told Business Today the new rules are already implemented in their majority in Malta, and are mainly addressed to those member states which have not been speedy on implementation.
Part of the background to the new law has been the Parmalat and Enron scandals, Fenech told this newspaper yesterday from Luxembourg.
The new law will also lay down a requirement for an independent audit committee which will strengthen monitoring of the financial reporting process and the statutory audit and help to prevent any possible undue influence of the executive management on the financial reporting of the audited entity.
The audit firm will have to communicate to the audit committee on key matters of governance interest arising from the audit, in particular on material weaknesses in internal control in relation to the financial reporting process.
The new directive specifies the duties of auditors, their independence and ethics, introduces requirements for external quality assurance, ensuring better public oversight over the audit profession and improving co-operation between oversight bodies in the EU.
EU law already imposes that annual accounts or consolidated accounts are audited by one or more persons entitled to carry out such audits. However, it does not include requirements on how a statutory audit should be conducted and the degree of public oversight or external quality assurance.
The new measures are intended to help improve quality audits within the EU and underpin the confidence in the functioning of EU capital markets. They will also provide a basis for international regulatory cooperation with oversight bodies of third countries to take account of globally interconnected capital markets.
Member States must also designate competent authorities responsible for approval, registration, quality assurance, inspection and discipline for the purposes stipulated by the directive and must cooperate with each other.
The new law is expected to enter into force within two years.