The European Commission has issued a Green Paper to promote discussion on the role of the auditor, the governance and the independence of audit firms, the supervision of auditors, the configuration of the audit market, the creation of a single market for the provision of audit services, the simplification of rules for Small and Medium Sized Enterprises / Practitioners and the international co-operation for the supervision of global audit networks.
The Green Paper submits the following considerations for public consultation:
- Determining whether there are possible ways to lower any gap between what investors expect from an auditor and what the auditor actually delivers, and whether the role of the auditor should be revisited;
- Exploring possible ways to improve the auditors' communication to stakeholders and regulators on what work they have carried out and what they have 'discovered' during their audit;
- Examining whether there are conflicts of interest in the current system e.g. when a firm both audits a company's results and offers it consultancy services; if so, what would be the appropriate manner to eliminate such intrinsic conflicts of interest so as to ensure complete auditor independence;
- Ensuring effective and independent supervision throughout the EU;
- Identifying if the current system entails any systemic, too big to fail risks because of the concentration in the audit market. What impact would the failure of one of the big audit firms have on the rest of the financial system? How could the accumulation of such risks be addressed?
- Improving the internal market of audit by ensuring further mobility for audit professionals and firms within the EU, possibly by creating a European Passport in this area;
- Addressing the proportionality of the application of regulatory requirements to reduce administrative burden for SMEs where possible.
This Green Paper is a part of the crisis related financial market reform and raises questions on the lessons learnt from the crisis with regard to the role of audit, its independence and the accumulation of systemic risk. The Commission is keen to address further potentially systemic risks proactively rather than reactively.
The consultation is open for responses until 8 December 2010. This will be followed by a conference in Brussels on 10 February 2011. The Commission will decide thereafter in 2011 on the need for any measures as a follow-up to the present consultation (this could include legislation).