ROTATION LEADING TO LOWER AUDIT FEES IN EUROPE
New York -- The Public Company Accounting Oversight Board is finding that the push toward mandatory audit firm retendering and rotation is leading to lower audit fees in Europe, sparking audit quality concerns.
Speaking at Financial Executives International's Current Financial Reporting Issues Conference in New York in November, PCAOB member Lewis Ferguson, who is chairman of the International Forum of Independent Audit Regulators, noted that he and other audit firm regulators abroad are noticing some disturbing trends in Europe since the European Parliament approved mandatory retendering of audit firms in April. The new directive requires most public companies to put out a bid for new auditors at least every 10 years, and rotate their audit firms at least every 20 years.
One of the findings that is troubling to regulators is that audit fees seem to drop between 20 and 40 percent in cases of rotation in Europe, except in the United Kingdom.
The PCAOB had been considering the idea of requiring mandatory audit firm rotation in the United States, and issued a concept release in 2011 suggesting the proposal. But after members of the House of Representatives overwhelmingly voted last year in favor of a bill that would prohibit the PCAOB from requiring public companies to change their outside auditing firms, the PCAOB shelved the idea.
"The other interesting statistic is that this program was put in largely as a pro-competitive requirement," Ferguson said of IFIAR's findings. "It was really not put in for audit quality reasons and it turns out that what's happening with rotation is that it appears to be increasing concentration, rather than decreasing it, because the business seems to be going to either the firm that already has the No. 1 or No. 2 market share in the different markets. So it seems to be doing exactly the opposite of what it was intended to do as a pro-competitive mechanism. It's going to be something to watch."
FAF, FASB AND GASB DRAFT STRATEGIC PLAN
Norwalk, Conn. -- The Financial Accounting Foundation and the two standard-setting boards it oversees, the Financial Accounting Standards Board and the Governmental Accounting Standards Board, have created a draft strategic plan of their vision, mission and top priorities, and are asking for comments.
"Before we developed the draft, we retained consultants to interview a broad spectrum of our stakeholders," wrote FAF president and CEO Terri Polley in her President' Desk Column.
The four top priorities are "practicing and promoting continued excellence in standard-setting, demonstrating a commitment to leadership in standard-setting, building and maintaining trust with stakeholders, and contributing to the public discourse on current and future financial reporting issues."
The FAF is asking stakeholders to read and share the draft strategic plan, and e-mail comments to email@example.com. The FAF board of trustees will consider adopting the plan at the board's February 2015 meeting.
AICPA ISSUES ADVISORY ON AUDITING BENEFIT PLANS
Washington, D.C. -- The American Institute of CPAs' Employee Benefit Plan Audit Quality Center has released an advisory document on the importance of hiring a quality auditor to perform employee benefit plan financial statement audits, along with information to help select a quality auditor.
The advisory is aimed at employee benefit plan sponsors, administrators and trustees. The Employee Retirement Income Security Act of 1974 requires employee benefit plans with 100 or more participants to have an audit as part of their obligation to file an annual report. If an employee benefit plan is required to have an audit, one of the sponsor's most important duties is to hire an independent qualified public accountant, and to ensure that the plan has obtained a quality audit in accordance with ERISA and Labor Department requirements.
ERISA holds plan administrators responsible for ensuring that financial statements in the plan are properly audited in accordance with generally accepted auditing standards. The hiring of a plan auditor is considered to be a fiduciary function. Plan administrators should use the same care in hiring a plan auditor that they use when hiring any individual or entity that provides services to the plan.
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