Statutory Audits of Public Accounts and of Public-Interest Entities : Detailed Appraisal of the European Commission's Impact Assessment

This note seeks to provide a detailed analysis of the strengths and weaknesses of the European Commission's Impact Assessment (IA) accompanying the proposal for a Directive of the European Parliament and of the Council amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts, and the proposal for a Regulation of the European Parliament and of the Council on specific requirements regarding statutory audit of public-interest entities (PIEs). It does not attempt to deal with the substance of the proposal, but rather analyses whether the impact assessment provided by the Commission will help the JURI Committee's consideration of the proposal, in full knowledge of the facts, and whether the impact assessment meets, firstly, the standards which the Commission has laid down in its internal Impact Assessment Guidelines, and, secondly, the quality criteria which the Parliament has defined in its resolutions on the subject. The first part of this note addresses the Commission's analysis of some existing problems in the field of audit, identified as in need of EU intervention. Although the Commission logically presents a number of problem areas in sufficient detail, the underlying drivers for the proposed policy change in the audit market seem to be less clearly evidenced. In particular, the causal link between an alleged general problem of deficiencies in audit quality in the EU and the worldwide financial crisis is not clearly demonstrated. Moreover, the Commission states that the competition on the market for audit services (especially audit of public-interest entities) is distorted as a result of the existence of a high level of market concentration. However, the existence of high market shares not being problematic per se, one might reasonably have expected the Commission, as the EU competition authority, to have provided a more thorough analysis of the market for audit services and to have made a more closely substantiated case fo