Mandatory audit firm rotation rules published in EU

The audit company's mandatory rotation requirements and other audit market reforms formally became part of EU law

Regulations issued in the Official Gazette of the European Union on Tuesday - the authoritative source of EU legislation -

Request public interest groups including listed companies, banks and insurance companies to change the auditor after 10 years. If an audit is bid, this period can be extended to 20 years. Alternatively, in the case of a joint audit, it can be extended to 24 years, and multiple corporate audits may be conducted.

The EU audit corporation is prohibited from providing certain non-audit services to customers, including certain tax, advice and advice services. Companies are prohibited from providing services to audit management teams and customers related to decision making and to provide many services related to entity financing, capital structure and investment strategy audit.

The terms of the loan agreement are forbidden, and auditing by one of the four major companies is mandatory.

This rule will come into effect on June 16, and most rules will come into effect on June 17, 2016. The four major loan contracts are prohibited on June 17, 2017

In the United States, PCAOB considered examining the rotation requirements of the audit agency, but this issue was removed from the agenda upon receiving a response from the legislator.

Mandatory audit rotation is intended to periodically suspend the audit work with the aim of avoiding excessive relationships between auditors and clients. In addition to the existing audit partner's rotation rules, the EU eventually introduced mandatory rotation to the auditing company. However, the United States decided to retain the partner rotation rules without introducing essential rotation by the auditing company. After reviewing the experiences of several countries, we summarize the pros and cons of forced changes by the audit company. In addition, it focuses on the empirical evidence gathered about the advantages and cost of the rules. So far, investigating the impact of corporate and market-level rules has not proved that the benefits outweigh the costs.

Mandatory Auditor Company The most cited value of the potential adverse effects of introducing rotation rules is conversion costs. The conversion audit firm will introduce costs that may be borne by the audit firm (eg familiar with the new customer accounting system) and customers (the time to select and train new auditors). In addition, because this rule takes time to become familiar with new audit recipients, we will lose customer-specific knowledge owned by the auditing company. During this familiar period, the auditor may miss a serious mistake or mistake and adversely affect the quality of the audit. Finally, in environments where the rules are not enforced, market participants can infer specific information (such as purchasing attitudes of customer opinions) on voluntary changes in the auditing company. With the setting of forced rotation, this is a more difficult / expensive audit company. Rotation is also occurring

From June 17, 2014 to June 17, 2016, Member States can pass the mandatory rotation rules of the auditor beforehand and further shorten the audit period. As of this writing, in some countries auditing company rotation rules are being implemented. In the UK, the essential rotation rules of the company were introduced on January 1, 2015, the Netherlands came into effect on January 1, 2016. Advantages and disadvantages of mandatory rotation, accountants, scholars and the public have discussed the necessity of audit rotation obligation for decades, but after the recent major financial scandals this problem is more extensive It was the subject of discussions among governments and organizations of each country. From a theoretical point of view, this rule may have a positive and negative impact on audit quality.