Summary of responses presented on 10 th February 2011 by the European Commission in Brussels Annual seminar in Berlin – 27 th May 20111

688 replies received Annual seminar in Berlin – 27th May 20112

599 European replies Annual seminar in Berlin – 27th May 20113

48 non-European replies Annual seminar in Berlin – 27th May 20114

Identity of respondents Annual seminar in Berlin – 27th May 20115

407 replies from Chartered Accountants Annual seminar in Berlin – 27th May 20116

145 replies from companies Annual seminar in Berlin – 27th May 20117

22 replies from users Annual seminar in Berlin – 27th May 20118

Global summary  Expectation gap confirmed : need more explanations about what an audit is intended for  « Societal » role of auditor recognised  No need to redefine this function  Legal framework not sufficient to safeguard auditor independence  « Big » does not mean « superior quality » Annual seminar in Berlin – 27th May 20119

Role of the auditor according to the profession  The purpose of an audit is not the financial health of the entity, but to express an opinion on the financial information provided by management.  To develop information given by the company.  Quality of the audit threatened by :  Reduction of the report’s production period  Reduction of fees Annual seminar in Berlin – 27th May

Role of the auditor according to the investors  Expectation for more information from the Auditor, but without any extension of his role  Request on going concern validations and fair value valuations  Explanation of the tasks realised  Reinforce scepticism, namely by reducing the amount of junior staff per audit partner  Not sign off simply because statements comply with accounting standards Annual seminar in Berlin – 27th May

Role of the auditor according to public authorities  Role limited to assurance concerning historical information, but not financial situation and forecasts  Explain the methodology in the report to reduce the expectation gap  Reinforce scepticism Annual seminar in Berlin – 27th May

Role of the auditor according to academics  Few added value to expect from an auditor report : form dominates over substance  More transparency is needed on audit quality by regulators and oversight bodies  Communicate about the content of tasks Annual seminar in Berlin – 27th May

Role of the auditor according to companies (1)  Opposition of an extension of the report to financial health  Develop communication between auditors and internal controllers  Limit the role to a risk based approach  Audit methodology to be better explained, but not in the audit opinion Annual seminar in Berlin – 27th May

Role of the auditor according to companies (2)  Revisit the report language : works realised, justification of the opinion and responsibility of the auditor, but not in favour of a « long » report (Germany)  Opposed to the role of the auditor in the environmental report (=>experts) Annual seminar in Berlin – 27th May

International Standards on Auditing (ISAs)  Quite broad support for their adoption, without increasing requests on small entities  Enable modifications because of national legislation  Introduce ISQC1 standard on quality control, already widely applied  Globalisation of ISAs acceptable if applied also in the USA Annual seminar in Berlin – 27th May

International Standards on Auditing (ISAs)  Critics on governance of IAASB :  lack of professionals (according to the profession)  Conflicts of interest (according to companies)  Need of flexibility due to the lack of a larger European representativeness  Request for an adaptation to SMPs and SMEs Annual seminar in Berlin – 27th May

Appointment of Auditors  Code of Ethics sufficient to address any potential independence risk  Reject of an appointment by third parties, except from control authorities to avoid conflicts of interest  Involvement of Audit Committees in choices  Request for a fixed scale of fees  Dumping practice for other services Annual seminar in Berlin – 27th May

Rotation  Reject of mandatory firm rotation  Risk on quality, and costs increase  Limitation of engagement for Public Interest Entities (PIEs) (10 years ?)  Request for a fixed period of 5-7 years Annual seminar in Berlin – 27th May

Non-audit services according the profession  Vast majority of replies against the prohibition  Big4 : justify the services by a best knowledge of the entity  SMPs : in favor of services but only for SMPs  Limits to be found for PIEs Annual seminar in Berlin – 27th May

Non-audit services according to investors  Services to be forbidden if not linked directly to the audit service.  Safeguard measures to be implemented to avoid conflicts of interest.  Establish an exhaustive list.  Openness on extent, content and cost of these services. Annual seminar in Berlin – 27th May

Non-audit services according to public authorities  Services useful to knowledge of the entity and audit quality  Against the prohibition  Interested by exhaustive list  Decision of the audit committee for the PIEs Annual seminar in Berlin – 27th May

Non-audit services according to academics  Prohibition = best guarantee for independence  Necessary to the auditor’s image towards third parties : appearance of independence  Advisory services are not used to improve the audit quality but to reduce the audit cost.  At least decision of the audit committee with a limit to 25 % of fees Annual seminar in Berlin – 27th May

European oversight  General trend in favour of the reinforcement of the EGAOB in a role of coordination at the European scale, as well as supervision. Annual seminar in Berlin – 27th May

Systemic risk according to the profession  No, according the Big4, providing that the auditor’s responsibility is limited  Yes, according to other auditors, as the choice is often even less than 4 (uncompliances, not appoint the competitor’s auditor)  Nasty oligopoly system because too influential Annual seminar in Berlin – 27th May

Systemic risk  Risk confirmed by investors, control authorities, enterprises and academics.  Too concentrated market, lack of competition.  Commission urged for a sustainable audit market, necessary to strengthen confidence and stabilise markets. Annual seminar in Berlin – 27th May

Audit firm consortia according to the profession  France mentioned as an example to be examined as a too big concentration of supply has been avoided in comparison with the other states.  Can dynamise the market but be careful with audit cost and quality.  Big4 against.  Other auditors very favourable if service shared with « non-systemic firm » Annual seminar in Berlin – 27th May

Audit firm consortia  Investors quite against, fearing an increase of costs of audits.  Control authorities request an EU regulation, namely for differences in opinion between consortium members.  Enterprises are not against but fear the cost : mandatory for listed companies and optional for the other ones. Annual seminar in Berlin – 27th May

SMEs simplified audit  Proposition quite widely rejected  Limited audit = confusion  An audit is an audit  Adaptation of requests to entity size required by the profession  Rather exempting from audit than lightening the service  Enterprises against SMEs audit Annual seminar in Berlin – 27th May

Thank you for your attention Annual seminar in Berlin – 27th May