European Audit Committee Leadership Network, February 2020
The Audit Regulation and Audit Directive (ARD), which came into effect in 2016, expanded the role and mandatory responsibilities of European audit committees.1 The ARD provided limitations on the types and amount of nonaudit services that audit firms can provide to audit clients. In view of these conditions, Tapestry Networks published Audit Committee Realities: Insights from Europe’s leading boards. The report provides stakeholders with a comprehensive inside look at the practices of the audit committees and audit chairs of some of Europe’s largest listed companies.
On 14-15 November 2019, members of the European Audit Committee Leadership Network (EACLN) met in Paris to discuss the report. Two guests joined them:
Ralf Bose, chief executive director of Germany’s Auditor Oversight Body. Mr. Bose also serves as chair of the Committee of European Auditing Oversight Bodies (CEAOB), which is the framework for cooperation between national audit regulators in the European Union.
Alain Deckers, head of unit, corporate reporting, audit and credit rating Agencies at the Directorate-General for Financial Stability, Financial Services and Capital Markets Union of the European Commission. He heads a team responsible for corporate reporting, including both financial and nonfinancial reporting, audit, and credit rating agencies. Mr. Deckers joined the European Commission in 1997 and has held positions of increasing responsibility throughout his 20-year career there.
Mr. Bose and Mr. Deckers shared their perspectives on two areas addressed in the report:
Audit quality: its market influences and measurements
Audit chairs and other stakeholders agreed that audit quality is paramount. They noted that overall quality can be hard to define and is influenced by a range of factors. The profitability of auditing, along with the culture and incentive structures at audit firms, is one driver of audit quality. Notwithstanding the ARD’s restrictions on nonaudit services, audit chairs remain confident that nonaudit services do not necessarily in any case compromise auditor independence or audit quality. Audit chairs and regulators acknowledged that sharing information, in particular information about audit inspections, might help both sides come to a more common understanding on the factors that contribute to a quality audit. Nevertheless, inspection results are only one indicator for audit quality.
Audit technology: the benefits and challenges of a redefined audit
Audit technology is transforming how audits are planned, managed, and conducted. Along with the finance function, audits are becoming digitalized. Data analytics dramatically expands the scope of auditable information by providing insights on effectively all of the auditable information, which provides a comprehensive view of errors and exceptions. These larger data sets need to be maintained and utilized effectively to avoid inefficiency and inaccuracy.