International auditing firm Mazars, represented locally by Mazars Malta, recently published a Guidebook to the European Audit Reform. The publication aims to explain the objectives and implications of the European Audit Reform, which aims to address concerns about audits raised in the wake of the 2008 financial crisis, and is considered to be an important step forward in the creation of a Single European Audit Market. The Reform is reflected in new legislation which came into force in June. Member states have a two-year window in which to implement the relevant Directive and Regulation.

Mazars Malta partner Paul Giglio said that through the Guidebook, Mazars wants to shed light on the European Audit Reform and to accompany the various stakeholders during this transition by providing a thorough understanding of the objectives of this Reform and the major changes to follow. “Before getting ready for any type of change,” Mr Giglio said, “it is first important to understand what will be changing. The aim of the Guidebook is to facilitate this process by providing stakeholders, in Malta as well as in the rest of Europe, with a practical tool which explains the scope of the Reform.”

Among the primary changes the Reform aims to bring about, one finds a  strong emphasis on  reinforced governance by increasing the role of the Audit Committee and introducing a fair and transparent tendering process for the selection of the auditor(s); a more elaborated audit report, with the requirement of additional reports; a system of mandatory rotation of audit firms which recognises that Joint Audit is a system with merits; a list of prohibited non-audit services and a threshold on permitted non-audit services provided by the audit firm; and finally, the creation of a Committee of European Auditing Oversight Bodies (CEAOB) to oversee the cooperation between national audit oversight bodies.

“If one had to consider the implications of this audit reform from a local perspective,” says Mr Giglio,  “it is very clear that stakeholders will be affected in different ways. Public Interest Entities (PIEs) such as banks, insurance companies and listed companies, will need to reinforce their corporate governance structures, while both auditors and PIEs will need to deal with the requirements relating to the introduction of audit rotation and the provision of non-audit services. This implies that local stakeholders cannot sit back and wait but should rather start gearing up to meet future challenges and opportunities.”