State Board Report
Obligatory auditor rotation after 14 years, with a possible extension to 25 years if certain safeguards are met, is one of the recommendations approved by the European Parliament’s Committee on Legal Affairs on April 25. The Committee also voted in favor of prohibiting audit firms from offering non-audit services that could jeopardize independence, and approved a list specifying those services. They recommended auditors of public interest entities (such as banks, insurance companies and listed companies) provide investors with a detailed explanation of what the auditor did and an overall assurance of the accuracy of the company’s accounts. The Committee backed the prohibition of “Big Four only” clauses in contracts and requiring public interest entities to call for tenders when selecting a new auditor.
However, the Committee on Legal Affairs did not recommend banning audit firms from providing all non-audit services nor did they recommend mandating joint audits that would have paired the largest firms with smaller ones for the biggest public interest entities’ audits. They also did not support proposed auditor rotation after only six years.
The changes still require the support of the full European Parliament and the 27 EU member states to become law.
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