The European Union (Statutory Audits) Regulations 2016 (the "Regulations") came into effect on 17 June 2016. This new legislation gives effect to an EU Audit Directive and a directly effective Regulation, the aim of which is to improve the quality of statutory audit across the EU Member States.
The new regime applies to financial years that commence after 17 June 2016. For financial years commencing before that date, the old rules as set out on the European Communities (Statutory Audits) Regulations 2010 will continue to apply.
Key measures which apply to all statutory auditors and audit firms include:
- Strengthening the independence of statutory auditors, particularly by making changes to the organisational requirements of statutory auditors and audit firms
- Expanding the content of the audit report
- Strengthening the supervision of statutory auditors by the relevant competent authorities across EU Member States. The relevant competent authority in Ireland is the Irish Auditing and Accounting Supervisory Authority (IAASA)
- Prohibiting "Big Four Only" clauses in contracts
Stricter requirements apply to the statutory audit of public-interest entities (PIEs), that is, listed companies, credit institutions and insurance undertakings. This is due to the systemic importance of such entities and the likely negative impact that audit failings in these entities would have on the wider economy. The stricter requirements include:
- Mandatory auditor rotation every ten years
- General prohibition on provision of non-audit services
- Limits on the fees paid for permitted non-audit services
- Specified procedures for the appointment of auditors
- More detailed report to the audit committee
In conclusion, it is likely that the impact on PIEs in particular will be considerable as they will now have to consider not only auditor rotation but also the extent of non-audit work being carried out by their statutory auditor.