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EU audit reforms 2013

The framework of EU audit reform was agreed in December 2013.

The general objective of the EU's audit reform is to 'Contribute to the efficient functioning of financial and non-financial markets by strengthening the market role of the audit profession to provide relevant economic agents and the market with more reliable, transparent and meaningful information, at an acceptable cost, about the veracity of financial statement of companies.'

Michel Barnier, the EU's internal markets commissioner, said the deal marked a "first step" toward boosting confidence in audit quality.

"Although less ambitious than initially proposed by the commission, landmark measures to strengthen the independence of auditors have been endorsed, particularly in the auditing of financial institutions and listed companies," Mr Barnier said.

Write an essay to answer the question 'how does the recently agreed EU Audit reform (December 2013) meet the objectives in providing audited financial statements which are independent and reliable?'

Part one
Identify and describe the EU Audit Reform of December 2013. Explain how the reform will ensure the market will be provided with 'more reliable, transparent and meaningful information.'

Part two
Critically evaluate whether or not the reforms will address the problems of independence and reliability of the audited financial statements.

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Part One
The EU Audit Reform of December 2013 has taken several steps that are designed to make the audit more independent and reliable.
The reforms require that listed companies and banks will have to change auditors after 10 years, with the possibility of keeping the same firm for an additional 10 years if the work has been put to tender. The rules are designed to make auditors independent and reliable. The representatives of the big four accountancy firms have been lobbying against the reforms. The purpose of these reforms is to increase the quality of audit. The reforms impose a cap of 70 percent on the fees generated for non-audit services, as well as a blacklist on certain types of advisory services. There will be direct limits on the tax advice and services linked to the financial and investment strategy of the clients. The reforms also create a single market for statutory audit services allowing auditors to exercise their profession freely and easily across Europe, once licenses. There will also be a more coordinated supervision of auditors in the EU. The mandatory rotation requirement for auditors in the reforms is that the audit firm will be required to rotate after a maximum engagement period of 6 years. There will be a cooling off period of 4 years before the audit firm can be engaged again by the same client. Joint audits are encouraged. Public interest entities will be obliged to have an open and transparent tender procedure when selecting a new auditor. The audit committee must play an important role in auditor selection. No non-audit service may be provided by the audit firm to the audit customers. This is an important provision to increase the independence of auditors. The large audit firms will have to explicitly separate audit activities from non-audit activities to avoid risk of conflict of interest. The reforms require that there should be close coordination and cooperation on the oversight of audit networks. The Europeans Markets and Securities Authority will coordinate the auditor supervision activities of the auditor. A single market for statutory audits will be introduced by introducing a European passport for the audit profession. This passport will allow audit firms to provide services across the EU and requires statutory auditors to comply with international auditing standards. This provision hopes to cut the red tape for smaller audit firms.
The reforms that have been listed are divided into three main parts. The first is a clarified societal role for auditors, a strong independent auditor regime, and a ...

Solution Summary

The answer to this problem explains EU audit reforms 2013 . The references related to the answer are also included.