Role of audits and Commission goals
A statutory audit is a legally required review of financial records. The role of a statutory audit is to certify the financial statements of companies or public entities. An audit provides stakeholders such as investors and shareholders with an opinion on the accuracy of companies’ accounts. As a result, statutory audits contribute to the orderly functioning of markets by improving the confidence in the integrity of financial statements.
In the field of statutory auditing, the Commission’s goals are to
- improve the independence of statutory audit firms and auditors from the entity being audited
- enhance the informational value to investors of audit reporting
- help cross-border provision of statutory audit services in the EU
- contribute to a more dynamic audit market in the EU
- enhance audit supervision
- foster convergence and cooperation with non-EU countries
Audit reform in the EU
The current rules were adopted in April 2014. They aim to improve statutory audits in the EU by reinforcing auditors’ independence and their professional scepticism towards the management of the audited company.
In the case of public interest entities (PIEs), for example, auditors will rotate on a regular basis and will no longer be allowed to provide certain non-audit services to their audit clients. PIEs are listed companies, credit institutions, insurance undertakings, or other undertakings designated by EU countries to be of public importance.
These rules help to foster diversity in the audit markets and enhance investors’ trust in the financial information of companies, which in turn improves the conditions for cross-border investment and economic growth in the EU.
The current rules consist of
- an amending directive (Directive 2014/56/EU) that sets out the framework for all statutory audits, strengthens public oversight of the audit profession and improves cooperation between competent authorities in the EU
- a regulation (Regulation No 537/2014) that specifies requirements for statutory audits of public interest entities (PIEs), such as listed companies, banks and insurance undertakings.
Cooperation between European national audit authorities
The Committee of European Auditing Oversight Bodies (CEAOB) was established in 2016 to improve cooperation between European national audit authorities in the EU. The CEAOB contributes to the proper application of EU audit legislation by facilitating supervisory convergence.
Regulation No 537/2014 requires national authorities responsible for audit oversight and the European Competition Network to draw up reports on developments in the national markets for statutory audit services to public-interest entities (PIEs). The Commission then uses these reports to draw up joint reports covering the whole EU.
In September 2017 the Commission published its first joint report on monitoring developments in the EU market for the provision of statutory audit services to PIEs.
In January 2021 the Commission published its second joint report on monitoring developments in the EU market for the provision of statutory audit services to PIEs.
Relations with third countries
Companies are increasingly operating on a global basis and are listed on capital markets in different continents. To ensure investors are protected by effective global oversight of auditors the EU cooperates internationally on the supervision of auditors.
The EU has adopted several equivalence decisions recognising that the public supervision of auditors in certain non-EU countries meets the same requirements that are in force in the EU through the audit directive.
The EU has also adopted several decisions recognising that the audit supervision authority of certain non-EU countries is adequate to exchange audit working papers with relevant authorities in EU countries.
The Commission has issued the following recommendations concerning audits and auditors