Mandatory audit firm rotation rules published in EU


By Ken Tysiac

A mandatory audit firm rotation requirement and other audit market reforms have formally became part of EU law.

Rules published Tuesday in the Official Journal of the European Union – the authoritative source of EU law – include:

  • A requirement that public interest entities – which include listed companies, banks, and insurance companies – change auditors after ten years. This period can be extended to 20 years if the audit is put out for bid, or 24 years in instances of joint audits, in which more than one firm conducts the audit.
  • A prohibition on EU audit firms from providing several non-audit services to their clients, including certain tax, consulting, and advisory services. Firms will be banned from providing services to audit clients linked to management or decision-making, as well as many services linked to financing, capital structure, and investment strategy of the audited entity.
  • A prohibition on contractual clauses in loan agreements that require the audit to be performed by one of the Big Four firms.

The rules come into force on June 16th, and most of the regulations apply beginning June 17th 2016. The prohibition on Big Four-only loan agreements applies beginning June 17th 2017.

In the US, the Public Company Accounting Oversight Board considered a possible mandatory audit firm rotation requirement, but has dropped the issue from its agenda after receiving pushback from legislators.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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