European Parliament Raises Concerns Over European Commission’s Audit Reform Plans

The European parliament has raised concerns on the plans related to reforming of audit market and have questioned the evidence on the basis of which such proposals have been formed. Recently, the European Parliament’s legal affairs committee was provided with a review of the European Commission’s audit reform proposals impact assessment, which was also championed by Michel Barnier, Internal markets commissioner. After going through the report the Impact Assessment Unit demanded clarification regarding the force with which the European Commission had analyzed the audit services market.

As per the report, the primary reasons behind reforming the audit market were ‘less clearly evidenced’ in comparison to the areas of problem pointed out by the commission. The Impact Assessment Unit also questioned the analysis carried out by the European Commission that stated that audit services competition, specifically audit of public-interest firms, has been twisted in view of the high level of market concentration.

The report also had issues with some preferred policy options and stated that the options had proportionality problems.

As far as European Commission’s proposed mandatory rotation for auditors and provision for non-audit and audit services to public interest firms is concerned, the Commission’s impact assessment found them as preferred options, even though the positive impact of these proposals were being contended by leading stakeholders.

The report also clarified that because neither the proposal costs nor their expected advantages have been completely quantified, it does not seem that the Commission has been able to offer sufficient amount of evidence that stated that preferred options were highly beneficial for the concerned market.

Responding to the report, Michael Izza, chief executive ICAEW stated that the European Parliament has put forward a number of concerns regarding the proposals and is now contemplating how the proposals will be taken forward.

Izza noted that it is important that both Parliament and the Council reflected on the report and only take those proposals forward, where the evidence is able to justify the need for reform. IAU’s report offers an in-depth analysis of the weaknesses and strengths of the European Commission’s impact assessment including its proposals and does not make an effort to deal with proposals’ substance.