Corporate Law Update: Your Auditor and You - The Impact of the New Statutory Audit Regulations
05 August 2016
New rules relating to statutory auditors will directly impact how you select, structure and manage the relationship with your auditor.
The new Irish Statutory Audit Regulations, which give effect to the EU Statutory Audit Directive, and expand upon the EU Statutory Audit Regulation, came into effect on 17 June 2016.
These new rules affect both the selection and the ongoing professional relationship with your organisation’s auditor. These rules impact upon all audited organisations but have particular implications for organisations which are classified as Public Interest Entities (“PIE”).
Some of the key provisions of the new rules are set out here.
Is Your Organisation a Public Interest Entity (PIE)?
An organisation is a PIE if:
- it is governed by the laws of an EU member state and its securities are listed on a regulated market in the EU;
- it is a credit institution; or
- it is an insurance undertaking.
PIEs are subject to the following new rules:
1. Auditor Selection and Mandatory Rotation (PIE only)
PIEs must now rotate their statutory auditors at least every ten years. Extensions are available in exceptional circumstances or where audit services are being provided by joint auditors. In addition, the selection of a new auditor is now subject to a review and recommendation process from an organisation’s audit committee.
2. Restrictions Providing Non-Audit Services (PIE only)
PIEs can no longer receive certain non-audit services, such as consultancy and advisory services, from their auditor. Certain services can still be provided, subject to a cap of 70% of the fee for the statutory audit averaged over the prior three years. PIEs should immediately review the non-audit services currently being provided, and seek alternative service providers where necessary.
All audited organisations, whether a PIE or not, should be aware of the following changes:
1. Prohibition on Auditor Choice Clauses
Any contractual clause which has the effect of restricting the shareholders’ choice of auditor to certain categories or lists is now void. While it applies equally to all audit firms, the intention of this rule is to prohibit agreements that require one of the Big Four accountancy firms to provide audit services to the organisation. Typically, such clauses are found in shareholders’ agreements, joint venture agreements and financing documents.
A one year transitional period is available for certain PIEs. All other organisations which have such restrictions in place should immediately consider making appropriate amendments to the relevant contractual clauses.
2. Moratorium Hiring a Key Audit Partner
A key audit partner is an individual responsible for the conduct of the audit or for signing the audit report. A key audit partner cannot be offered a key management position or a non-executive role in an organisation for at least one year following the end of the audit engagement of that partner. This time limit is extended to two years for PIEs.
If you are considering making such an appointment, suitable arrangements will need to be put in place before the commencement of your next statutory audit.
For more information, please contact a member of our Corporate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.