The European Union’s new rules for mandatory audit firm rotation took effect on June 17, only a week before the United Kingdom voted to “Brexit” from the E.U. How will that affect audit firm rotation in the U.K. and Europe?
It’s probably too soon to say for sure. The mandatory audit firm provisions are only part of a wide-ranging set of audit market reforms now mandated in the E.U. They aim to force large public companies to tender requests for new audit firms at least every 10 years and to actually rotate audit firms at least every 20 years.
There are also lots of other new rules in the E.U. reforms related to areas such as barring certain non-audit services, limiting the fees for non-audit services, making the audit report more informative, putting in place more stringent sanctions, and improving the competence and role of audit committees.
A recent study by Ernst & Young found that one out of five large companies in the United Kingdom is “woefully unprepared” for the new EU rules on audit firm rotation, according to the Financial Times. The Brexit will give them more time now to stick with the same audit firm, if 20 years isn’t enough time, that is.
By then, if more countries decide to exit the E.U., as France and Italy are now reportedly contemplating, there may not be an E.U. to worry about.