EU audit legislation has been saved
EU audit legislation
Impact and expectations
The new European Union (EU) statutory audit legislation became effective 17 June 2016*. Some member states are already beginning to enact change, and businesses are taking steps to proactively comply with these measures. Deloitte has compiled the answers to some of the most pressing questions around the legislation and the potential implications on your business.
However, the legislation is complex, and the summary descriptions of legislative and implementation considerations outlined herein do not constitute legal advice. Several areas of the legislation require interpretation and may evolve over time, and market participants may wish to seek legal advice before taking measures to comply with the legislation. Information provided is as of November 2015.
- What does this legislation mean?
- Where does the legislation apply?
- Does this legislation affect my business?
- Deloitte reports
- Other useful links
What does this legislation mean?
The legislation has two components — a directive and a regulation.
The directive contains a series of requirements governing every statutory audit in the EU and amends the existing Statutory Audit Directive of 2006. The regulation contains a series of additional requirements that have received much attention, but relate only to the statutory audits of public interest entities (PIEs). These additional requirements include mandatory firm rotation and prohibited non-audit services.
Estimates indicate that there are approximately 300,000 companies in the EU that are currently required to have a statutory audit. Of these, approximately 30,000 are thought to fall within the PIE definition and will need to comply with the additional requirements.
Where does the legislation apply?
This legislation will be applicable in the 28 EU member states as well as Iceland, Liechtenstein, and Norway as these countries are bound by the legislation as members of the European Economic Area (EEA). EU member states have until 17 June 2016 to transpose the legislation into their national law and decide on a number of options that have been afforded to them.
The formal agreement of the EEA Joint Committee on the date of application of the regulation and the transposition date of the directive for Iceland, Liechtenstein, and Norway is still pending.
Certain member states have provided other start dates for the specific provisions of this legislation.
Does this legislation affect my business?
The legislation applies to any entity, including subsidiaries of multinationals headquartered outside of the EU that falls within the definition of a PIE.
Complexities occur when there are multiple subsidiaries operating in different EU member states, as member states have the opportunity to tailor the local legislation.
It will not be fully apparent how this legislation affects multinationals until each member state enacts legislation by June 2016.
The EU statutory audit legislation overview is available here for download.
Each chapter can be downloaded individually:
- Public interest entity - Definition and scope
- Mandatory firm rotation - Tendering, joint audit and transition
- Non-audit services - Restrictions and fee cap
- Audit committees' role
- Auditor reporting and oversight
- Member state options and cross-border impact
European Commission memo and answers to parliamentary questions
- EC FAQ of 3 April 2014 - Reform of the EU Statutory Audit Market
- EC FAQ of 16 June 2014 - Reform of the EU Statutory Audit Market (update)
- EC Q&A of 3 September 2014 - Implementation of the New Statutory Audit Framework
- Parliamentary questions of 3 June 2015
- Parliamentary questions of 29 September 2015
- EC Q&A of 1 February 2016 - Implementation of the New Statutory Audit Framework
- EC reply to MEP question on timing cooling-in period (October 2015)
- EC reply to MEP question on Engagement Quality Control Review (November 2015)
* The legislation goes into effect the first financial year starting on or after 17 June 2016 with the exception of mandatory rotation, which is subject to a transition period.