On Wednesday, November 5, 2014, the lecture “Recent Trends in Auditing in Europe” was held in the auditorium of the School of Management and Social Sciences.
The lecture was delivered by Dr. María Antonia García-Benau, professor of Financial Economics and Accounting at the University of Valencia. She has published articles in prestigious academic journals and is a founding member of the European Auditing Research Network. She is a visiting professor in the graduate programs in Accounting and Taxation at the faculty’s Graduate School.
During the conference, the expert provided an overview of changes to audit regulations in Europe following the 2008 crisis. These changes were implemented to restore market confidence and ensure the quality of financial information disclosed by companies.
"In this way, Europe today wants to take the lead in this debate on the international stage," he said.
García-Benau argued that, in the wake of the crisis, confidence in auditing firms had been shaken. It became clear that the assurance these firms provided regarding financial information had “shortcomings,” making it necessary to “overhaul” the regulations governing their work.
According to the expert, around 1980, auditing was not a major concern for European countries. Each country had its own criteria for auditing companies, which only began to be harmonized in the early 1990s.
However, those measures were “insufficient,” and financial scandals such as the Parmalat scandal at the beginning of the 21st century directly implicated the auditing firms. In that case, García-Benau noted, there was document forgery, accounting fraud, and illicit enrichment, among other crimes.
According to García-Benau, this corruption scandal marked a turning point in the field of auditing. He noted that it triggered a crisis in the “audit market” because there was a disconnect between what audit firms were doing and the expectations of their clients, who were often not accounting experts.
In the wake of the scandal, it was concluded that the auditor’s role in addressing fraud was unclear because of a lack of independence.
Starting in 2006, the European Union adopted measures to promote auditor independence, but just as these measures began to take effect, the 2008 crisis erupted. The financial collapse sparked a movement calling for Europe to take the lead in improving audit quality.
It became clear that stricter standards were needed for companies considered to be “public interest” entities.
Restoring trust
The goal was “to increase transparency, strengthen independence, and revitalize the audit market, which was dominated by four large firms.”
To that end, European Union directives were issued stipulating that auditors could not receive more than 30% of their fees from a single client and that audit firms must restructure internally to safeguard their independence.
It was established that the auditor could not provide consulting services to companies and must consult the Audit Committee if there is any doubt regarding the loss of independence.
In addition, a new regulation is under consideration that would require the audit partner to remain in charge of a client for a maximum of seven years and that companies must change auditors every 10 years, in order to break any “familiarity” that could compromise independence.
The trend in Europe will be to request, in addition to the standard audit report, a report for the Audit Committee, another report for the government agencies that oversee public-interest entities, and a transparency report from the auditor detailing the firm’s internal operations and organizational structure.
According to García-Benau, the current trend is for audit reports to be addressed not only to shareholders but also to various stakeholders. That is why, in addition to a report on financial statements, topics such as the company’s environmental sustainability are now included.
There is also a school of thought within academia that argues companies should issue a report on the company’s overall value—including, for example, corporate social responsibility initiatives—rather than just financial information. There is also a trend toward having these comprehensive reports certified by independent insurance companies, García-Benau noted.
https://youtu.be/LUgOzFe-HIU