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European Union Audit Legislation - PDF

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Added on  2019-12-28

European Union Audit Legislation - PDF

   Added on 2019-12-28

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Auditing
European Union Audit Legislation - PDF_1
TABLE OF CONTENTSRationale behind the EU regulation on auditor rotation..................................................................1Critical evaluation of whether audit rotation will lead to independence in appearance as well asin reality...........................................................................................................................................1A critical assessment of other implications of audit firm rotation...................................................3REFERENCES................................................................................................................................6
European Union Audit Legislation - PDF_2
Rationale behind the EU regulation on auditor rotationEuropean Union has adopted regulation on the auditor rotation. There can be manyreasons behind such regulation. The regulators are thinking about the ways of improving theindependence, objectivity and professional scepticism of the auditors (Porter, Simon andHatherly 2014). The main objective is to recognize the perception of over-familiarity betweenthe auditor and the company’s management. It is believed that the legislation will help in servingthe needs of the companies and investors in better manner. It will give strength to the capitalmarkets and further will enhance the confidence in the financial reporting (Zadek, Evans andPruzan, 2013). It has been enthusiastically believed that the statutory auditors should continuously findthe ways to improve the independence safeguards. Focus is to be paid on the rules to increase themarket confidence in the quality of audits. Financial reporting is required to be done with extracare and diligence (Hayes, Wallage and Gortemaker, 2014). However the applied regulation isnot the appropriate solution to these kind of issues. It can be said that it puts the audit quality atsignificant and unessential risk. The experts are of the opinion that there can be more effective,less expensive and less disruptive methods to reinforce the independence. In many nationsalready effective safeguards and independence frameworks are in the place (Rittenberg,Johnstone, and Gramling, 2010). For the future improvements, audit committee can beestablished which can act as the foundation for any future improvements. However it can beinterpreted that EU has adopted the regulation for more open and transparent auditing activities. Critical evaluation of whether audit rotation will lead to independence inappearance as well as in realityAudit rotation seeks to reinforce the auditor independence. They will be able to workwith more enthusiasm. They serve the public interest and confidence in the independence iscritical to the investor confidence in audit and financial reporting (Kuhn and Sutton, 2010).There is no evidence although the mandatory rotation increases the independence and auditquality. It also puts doubt on the potential of the inspection committee regarding whether orwhen to replace the audit. The role of the committee can be very crucial in this regard (Harrisand Whisenant, 2012).1
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