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AIA

European MPs vote for audit reforms

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9th Apr 2014
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Listed companies will have to re-tender the contract for their auditors every 10 years after politicians in the European Parliament voted to reform European audit rules.

Companies will have to rotate their auditor every 20 years and there will be an expanded list of consultancy services that auditors are banned from offering, under the planned rules. There will also be a cap on how big a proportion of the audit fee can be made from offering non-audit services.

The reforms are intended to increase competition for audit services and prevent conflicts of interest between companies and their auditors.

The draft rules, which have been discussed for three-and-a-half years, are less stringent than the ones first proposed by the European Commission. The profession has accepted the main principles of the new rules but still has some concerns.

“While perhaps not enthusiastic about all areas of change, I think everybody has now accepted that these are the new rules audit firms and companies will have to operate within," ICAEW chief executive Michael Izza said. "We are already seeing changes emerge in the market, including the UK, with long-standing audit engagements being put out to tender and audit committees being more prescriptive about the kind of non-audit services they ask the auditors to provide.

Some companies have already imposed restrictions on their auditors.

RSA Insurance Group last month said that it will limit the amount of fees its auditor can earn from providing consultancy work to the insurance company.

KPMG will be able to make a maximum of 25% of its total audit fee from non-audit services such as advice on tax, strategy and IT, RSA said in its annual report.

The change is similar to the proposed reform of audit rules by the European Commission – including a cap of 70% on fees for non-audit services and banning some.

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