Mandatory Audit Firm Rotation
We look at developments in the audit sector following EU proposals for audit rotation.
The European Parliament’s Legal Affairs Committee has voted in favour of a draft law that would require public-interest entities such as banks, insurance firms, and listed companies to rotate audit firms every 14 years and prohibiting the provision of certain non-audit services and ruling out Big Four-only contractual clauses.
The measures represent a watered down version of proposals we reported on in previous editions of this Update, which had called for a six year rotation period and a general ban on offering non-auditing services. Under the proposed rules, which mirror those set by the International Ethics Standards Board for Accountants, auditing firms would be able to continue providing certification of compliance with tax requirements, but they are to be barred from supplying tax advice which directly affects the company’s financial statements and may be subject to question by national tax authorities. The 14-year rotation period can be extended to 25 years if certain safeguard criteria are met.
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