The Audit Reform In Detail Accounting Essay


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The audit committee's recommendation for the appointment of an auditor should be discussed at the general meeting of shareholders. The audit committee's independence and technical competence should be reinforced: at least two of its members must be independent and at least one should have knowledge of audit.

Auditors will be prohibited from providing non-audit services to audit clients. The provision of non-audit services to non-audit clients is allowed.

Large audit firms will be required to separate their audit activities into pure audit firms i.e. a complete ban on the provision of non-audit services by the large audit firms.

EU-level cooperation by the European Securities and Markets Authority (ESMA).

National audit supervisory authorities would be strengthened. The mandate, powers and independence requirements for audit supervisors would be established at EU level, but supervision would be carried out nationally.

European certification of audit firms recognising their aptitude to perform high quality audits of listed companies. The certificates would be issued by ESMA.

Regular dialogue will be held between auditors, audit committees and supervisors.

Mutual recognition of statutory auditors approved in Member States to ensure cross-border mobility of auditors.

The content of the audit report will be expanded to provide more information to all stakeholders.

An additional more detailed audit report for the audit entity itself which will provide detailed information on the audit carried out to the audit committee and management." [6] 

KPMG's reaction

"The heavy hand sweep has drawn criticism from the leading business groups." [7] The Big Four is trying to soften the rules, but on the other hand, the small auditor firms are supportive of the proposed new legislation.

KPMG reacted positively on some of the new proposals to improve audit relevance and quality, the strengthening of the role of the audit committee and a more structured approach to communications with supervisory bodies and regulators. However, they stated: "Audit quality is dential best provided by multidisciplinary firms. Our capability to provide quality audits will be diminished if our auditors are separated from wide ranging advisory expertise including, specifically, risk management in the financial sector. The perceived lack of independence of the auditing accountant is, in our opinion, more the result of the current perception in society of accountants rather than actual facts." [8] 

Their reaction on the limitations on the provision of advisory service: "We have already observed that many organizations find their own appropriate balance between the audit and the receipt of essential advice and actively manage that relationship." [9] They think that a full stop on advisory service will lead to increased costs for clients. "It is clear that the rift in confidence between the accountant and society still remains. We will therefore have to look for solutions to change this societal perception.

We should, however, emphasize the importance of the Netherlands remaining connected with the international rules and regulations, in order to maintain a 'level playing field' for Dutch businesses." [10] 


At this moment the legislation is still being discussed and many investigators are publishing research reports about the influences. In September the UK MEP on Legal Affairs Committee, Sajjad Karim, came up with some interesting amendments which dilute the reforms.

"takes out references to the role of auditors in the financial crisis

removes a 10% limit on fees from related financial audit services

aligns the wording around non-audit services and a number of audit procedural areas with international guidance

deletes the proposal to have audit-only firms at the largest end of the market

and extends the proposed maximum term for audit engagements for public interest entities from 6 years to 25." [11] 

Mainly, the key concept in this reform it the fact that the Big Four is dominating the audit market. That means for KPMG, and the other three companies, that they will face a decrease in their revenue and profit. For KPMG in particular, the separation of the audit and non-audit services will have large impact, because we see that they are promoting their advisory service on their website.

In short, the question is: How are they going to reform their companies to reduce the negative influences?

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