European audit reform proposal moving forward

April is the forecasted date for a vote of the full European Parliament on European Union audit market reforms, which took another step in the legislative process this week.

The EU Legal Affairs Committee voted 13–8, with one abstention, on Tuesday to approve a draft agreement between Parliament and the European Council. The draft agreement includes a requirement for public-interest entities to rotate audit firms every 10 years, with some exceptions.

Public-interest entities include listed companies, banks, and insurance firms. Engagements may be allowed to continue for a maximum of 20 years if the audit engagement is put out for bid, and for 24 years in cases where multiple audit firms share the engagement.

The draft agreement also would prohibit EU audit firms from providing certain nonaudit services to the public-interest entities they audit, including tax advisory services that directly affect the company’s financial statements. Another requirement would limit fees from permitted nonaudit services to an audit client to 70% of the audit fees.

The next step for the draft agreement is a vote by the full Parliament, which a Parliament news release said is likely to occur in April.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.