Internal audit is now officially on a “blacklist” of services that accountancy firms are forbidden from providing to their statutory audit clients.
The EU’s revised Statutory Audit Directive and its Regulation include measures aimed at strengthening auditor independence, compulsory auditor rotation, a broader role for the audit committee and restrictions to the work that statutory auditors can provide to their clients.
“We fully support the move to make the statutory audit more transparent,” ECIIA President Henrik Stein says. But the rules have serious implications for the way that internal audit is resourced in larger organisations, he adds. Chief audit executives will need to think carefully about the balance between out-sourced internal audit requirements and those provided in-house.
Internal audit will also play a critical role in ensuring the systems put in place to help the audit committee monitor the work of external audit are robust and accurate. “In large organisations, statutory audits can take several months to perform over many legal jurisdictions and it will be a challenge to get this right,” Stein says.
While audit oversight will continue to be conducted at a national level, a new Committee of European Auditing Oversight Bodies will replace the existing European Group of Auditor Oversight Bodies. The precise details of how the latter is to operate are unclear.
Those affected are listed companies and other so-called public interest entities, such as credit institutions and insurers. The European Union’s revised rules on auditing came into effect on 17 June 2016.