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State Board Report

December 2012

The audit profession in Europe is in political focus and matters relating to the profession could be horse traded, warned Philip Johnson, president of the Fédération des Experts Comptables Européens (FEE), at the NASBA International Forum on October 31. This scrutiny is affecting all jurisdictions – including the United States. “The PCAOB is being influenced by what is happening in Europe. Their concept releases came in response to questions being raised in the EU,” Mr. Johnson stated.

He explained that the European Commission is the executive body of the European Union. The EC proposes legislation, but it cannot enact it. The Council of the EU is composed of representatives of all 27 member states, and it legislates and coordinates economic policy among the member states. The European Parliament represents the EU citizens as it also legislates and supervises EU institutions. Final legislation is co decided by the Council of the European Union and the European Parliament. The Council will meet in December and the Parliament in January.

“There are more proposals to revise EU audit policy,” Mr. Johnson reported. “The debt crisis has led to major austerity programs. It is impacting people in the street, who are voters. This is now political. The auditing profession is low lying fruit… The audit profession has to be part of the solution,” he counseled.

The reaction to having an auditor’s commentary in the financial report has been more pronounced in the U.S. than in Europe, he noted, and attributed that to litigation issues in the U.S. He noted that it has been said, “The outcome of an audit is the best kept secret there is,” with only the final result of pass or fail being reported. “You have to change the reporting framework,” Mr. Johnson told the NASBA Forum. “The auditor is going to report more about a going concern.”

FEE is currently working on a paper relating to the “Future of Audit.” He pointed out FEE had released four briefing papers in July 2012. They covered: improved auditor reporting; the provision of non-audit services to public interest entities’ audit clients; adoption of ISAs in the EU; and public oversight of statutory auditors and audit firms.

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