The audit reforms in Europe one year on - a bullet dodged or a trick missed?

August 2017

Late 2008, the financial crisis is in full flow, and one financial institution after another is collapsing. Before long, the whole financial services’ industry came under scrutiny – first banks and insurance companies, then credit rating agencies and finally auditors, some of whom were seen as having vouched for the financial status of financial institutions as “going concerns” not long before they went bust. Many commentators suspected auditors would end up ‘taking a beating’ once the scrutiny process was completed. Others, including some in the audit profession, saw it as a chance to make auditing more effective and fit for 21st century purpose.

Nearly six years later, two pieces of legislation were adopted by the European Parliament and the European Council, responding to the scrutiny of auditors by the EU. After publication in the Official Journal of the European Union in June 2014, the ‘new’ Audit Directive and Audit Regulation came into effect two years later – on 17 June 2016. We are now twelve months on from this date and commentators generally agree that for Europe’s larger companies the reforms have substantially changed the markets for audit and non-audit services. But as yet, there is precious little real data on the resulting impacts on audit firms. The evidence is still anecdotal and just like with the French Revolution, maybe it’s just too early to say!