ASSIGNMENT

Assignment



Table of Content

Introduction2

Background to the EC Audit Reforms Proposals2

Discussion2

Proposals3

Explanation and critical appraisal of the EC audit reform proposals4

Underlying areas of concern that the EC audit reform proposals seek to address6

Conclusion7

Recommendation8

References9

Assignment

Introduction

The topic under study involves a critical discussion and explanation on the background of the EC audit reform proposals, and critically discusses their content, alternative solutions and likely impact of such proposals on the audit profession, its clients and society. For this purpose, the discussion addresses an explanation of the underlying areas of concern that the EC audit reform proposals seek to address, an explanation and critical appraisal of the EC audit reform proposals, possible alternatives and expected reaction from, and impact on, the audit profession, audit clients and wider society, critical discussion and comment on possible future developments in relation to future reform of the external auditing sector and lastly the paper includes conclusions and recommendations.

Background to the EC Audit Reforms Proposals

The drive which caused the development of European commission proposals was the financial crises. It is the believe of the European commission itself that the financial crises caused the shortcomings in this concern. In particular, it is concerned about the dominance of the "Big Four" and, more generally, about the fact that public trust in the reliability of audited accounts may have been shaken.

Discussion

The European commission, in the month November 2011, published proposals which were aimed at reforming the audit market. These audit proposals are known as European commission audit proposals. The purpose of these proposals is to provide independence to the auditors from the audited companies and promote development for that audit market which is less intense. Although, it is not necessary that the effects do take place from the changes but, the proposals itself are effective enough for the companies to give a thought about the potential implications (Christian, 2011, p.279).

Proposals

The long-awaited proposals for reform of audit in the EU published in November 30, 2011 aimed primarily at the statutory audit of public companies (listed and financial institutions such as banks and insurance companies), the proposals also are a reaction to the dominance of the European Commission's firm "Big Four". Great emphasis is placed on increasing the independence of auditors. The European Commission proposed the introduction of joint audit requirements for increasing the involvement of medium-sized accounting firms (Craig & Burca, 2011, p.121). Key proposals include:

Mandatory rotation of audit firms

Rotation of audit firms should be carried out in 6 years. Nevertheless, the period may be extended up to 9 years in the case of a joint audit. Thus, a joint audit is encouraged but not mandatory.

Mandatory Tenders

Organization of public interest will be required to organize an open and transparent tender when selecting a new auditor thus strengthening the role of audit committees.

No audit services

Audit firms are not allowed to provide auditing services. Large audit firms will be requested to separate auditing services from non-audit in order to avoid all the risks associated with the conflict of ...