Summary of Regulatory Impact Analysis (RIA)
Department/Office:
Title of Legislation:
Department of Jobs,
Enterprise and
Innovation
Date: 21 December 2016
Companies (Statutory Audits) Bill 2017
Related Publications:
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Directive 2014/56/EU amending Directive 2006/43/EC on statutory audits of
annual accounts and consolidated accounts
Regulation (EU) 537/2014 on specific requirements regarding statutory audit of
public-interest entities
Directive 2006/43/EC on statutory audits of annual accounts and consolidated
accounts, amending Directives 78/660/EEC and 83/349/EEC and repealing
Directive 84/253/EEC
European Communities (Statutory Audits) (Directive 2006/43/EC, as amended by
Directive 2014/56/EU, and Regulation (EU) No 537/2014) Regulations 2016, S.I.
No. 312 of 2016
Regulatory Impact Analysis S.I. No. 312/2016 - European Union (Statutory Audits)
(Directive 2006/43/EC, as amended by Directive 2014/56/EU, and Regulation
(EU) No 537/2014) Regulations 2016
Available to view or download at:
http://www.djei.ie/
Contact for enquiries:
Telephone:
Orla O’Brien
(01) 631 2549
Background
In the wake of the international financial crisis the European Commission brought
forward proposals for an Audit Directive and Regulation in December 2011 with the
general aim of –
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strengthening the independence of auditors
introducing greater diversity into the audit market
creating a Single Market for statutory audit services allowing auditors to exercise
their profession freely and easily across Europe, once approved in one Member
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State
introducing a strengthened and more coordinated approach to the supervision
of auditors in the EU
The audit package, comprising a Directive (2014/56/EU) which amends Directive
2006/43/EC and a Regulation (EU) No 537/2014, was adopted by the European
Parliament and the Council and entered into force in June 2014.
The Audit Directive is aimed at improving audit quality and includes measures to
strengthen the independence of statutory auditors, make the audit report more
informative, and strengthen audit supervision throughout the EU. The Directive
augments the provisions of the Statutory Audit Directive (2006/43/EC) which was
transposed into Irish law by S.I. No. 220 of 2010.
The Audit Regulation is directed at the statutory audits of Public-Interest Entities (PIEs),
entities which are of significant public interest because of their business, their size, their
number of employees or their corporate status is such that they have a wide range of
stakeholders. The category of PIE encompasses systemically important entities such as
credit institutions and insurance undertakings. Listed companies on a regulated main
market in the EU are also classified as PIEs.
The Department conducted a public consultation on the use of Member State options
contained in the Audit Directive and Regulation, with a deadline for responses of 21
November, 2014. The necessary elements of the Directive and Regulation have already
been given effect by means of the European Union (Statutory Audits) (Directive
2006/43/EC, as amended by Directive 2014/56/EU, and Regulation (EU) No 537/2014)
Regulations 2016, S.I. No. 312 of 2016. The optional elements of the Directive and
Regulation which could not be availed of in secondary legislation will now be given
effect in primary legislation in the Companies (Statutory Audits) Act 2017. The
provisions of S.I. No. 312 of 2016 will be included in this Act. This will ensure a single
coherent body of legislation that clearly aligns mandatory and optional elements of the
EU instruments within national law.
The purpose of this Bill is;
 to provide a single legal framework for statutory auditors and audited entities on
the requirements for statutory audit,
 to give IAASA, as the competent authority with ultimate responsibility for
oversight, the appropriate powers to ensure effective monitoring and
enforcement of the new requirements,
 to update the rules relating to the auditors of Industrial and Provident Societies
Acts and the Friendly Societies Acts,
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to clarify the rules on the late filing of annual returns, and
to provide for an extension to the rules allowing certain firms to continue to use
US GAAP.
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Table of Contents
Policy Context ..................................................................................................................................... 5
Consultation ........................................................................................................................................ 5
Transposition ...................................................................................................................................... 6
Identification of Options ..................................................................................................................... 7
Part 1 - Directive 2014/56/EU amending Directive 2006/43/EC. ........................................................... 8
Introduction ........................................................................................................................................ 8
Definition of Public Interest Entities ............................................................................................... 8
Designation of Competent Authority.............................................................................................. 9
Audit Committee ........................................................................................................................... 12
Qualifications, Education and Training ......................................................................................... 14
International Auditing Standards - Article 26 .............................................................................. 15
Article 28 – Audit Report............................................................................................................... 15
Article 30 – Systems of Investigations and Sanctions ................................................................... 16
Minimum Harmonisation .............................................................................................................. 17
Part 2 – Regulation (EU) 537/2014 ....................................................................................................... 18
Introduction ...................................................................................................................................... 18
Independence - Article 4 - Caps on Audit Fees and Non-Audit Services Fees .............................. 18
Additional Reporting and Record Keeping Requirements ........................................................... 19
Public Auditors .............................................................................................................................. 22
Filing deadlines for annual returns ............................................................................................... 22
Part 4 – Summary of Impacts of the Audit Reform Package, removal of the term Public Auditor and
changes to rules on file an annual return ............................................................................................. 24
National Competitiveness ............................................................................................................. 24
Whether there is a significant policy change in an economic market, including consumer and
competition impact ....................................................................................................................... 24
Compliance Burden ....................................................................................................................... 24
North-South and East-West Relations .......................................................................................... 25
Other Considerations .................................................................................................................... 25
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Policy Context
The EU audit reform package, comprising a Directive (2014/56/EU) which amends Directive
2006/43/EC and a Regulation (EU) 537/2014, was adopted by the European Parliament and
the Council and entered into force in June 2014.
The Audit Directive and Regulation update existing EU law on statutory audits in 3 main
areas. Those are –
1. The framework for public oversight of audit
2. The obligations on statutory auditors when auditing the financial statements of their
clients
3. The obligations on public-interest entities with respect to the appointment of and
interaction with their auditors
The Audit Directive is aimed at improving audit quality and includes measures to strengthen
the independence of statutory auditors, make the audit report more informative, and
strengthen audit supervision throughout the EU. The Directive amends and augments the
provisions of the 2006 Directive.
The Audit Regulation is directed at the statutory audits of Public-Interest Entities (PIEs),
entities which are of significant public interest because of their business, their size, their
number of employees or their corporate status is such that they have a wide range of
stakeholders. The category of PIE encompasses systemically important entities such as
banks and insurance companies. Listed companies on a regulated main market in the EU
are also classified as PIEs.
Consultation
In 2014, the Department conducted a consultation on the use of Member State options
contained in the Audit Directive and Regulation with a deadline for responses of 21
November of that year. The consultation sought the views of interested stakeholders on a
number of topics as follows:
1. the use of Member State options under Regulation (EU) No 537/2014 of the
European Parliament and of the Council of 16 April 2014 on specific requirements
regarding statutory audit of public-interest entities and repealing Commission
Decision 2005/909/EC,
2. the use of Member State options under Directive 2014/56/EU of the European
Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on
statutory audits of annual accounts and consolidated accounts,
3. cost/benefits of the options or any other provision of the Regulation/Directive,
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4. difficulties of legal interpretation,
5. practical operability issues,
6. any other aspect of the Regulation/Directive.
The consultation did not specifically extend to aspects of the Directive and Regulation over
which Member States have no discretion but stakeholders were invited to raise any other
relevant issues. In total, 18 submissions were received under the public consultation and
these submissions have informed the content of the Regulations. The views of stakeholders
are summarised in this RIA. The full consultation documents and collated responses from
stakeholders are available on the Department’s website at the following link:
https://www.djei.ie/en/Consultations/Consultation-on-Member-State-Options-under-AuditRegulation-EU-No-537-2014-and-Audit-Directive-2014-56-EU.html.
As well as the public consultation the Department had ongoing engagement with
stakeholders during the transposition process and held three meetings between April 2015
and April 2016 to which stakeholders were invited.
The Department also consulted directly with Regulators, other relevant Departments and
bodies.
Transposition
Both the Audit Directive and the Regulation include options for Member States to consider.
Some of these options were necessary or consequential to transposition or are already
requirements in national law and could be transposed by way of Statutory Instrument
under the powers conferred on Ministers by the European Communities Act 1972. This was
done in S.I. No. 312 of 2016 which was signed on 15th June and came into effect on 17 June
2016. The Regulatory Impact Analysis on this instrument is available at the following link:
https://www.djei.ie/en/Legislation/Legislation-Files/RIA-Statutory-Audits-Regulations2016.pdf
However, there were a number of Member State options in the Directive and Regulation
which could not be exercised by way of the statutory instrument that it is considered
desirable to exercise to enhance the system of oversight of statutory audit and audit quality
in Ireland. The General Scheme of the Companies (Statutory Audits) Bill 2017 exercises
those options that require primary legislation.
As there is an inherent complexity in a transposition combining interlinked primary
legislation, secondary legislation and an EU Regulation, the Department considers that a
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single amendment to the Companies Act 2014, with the EU Regulation standing alongside,
will provide a clear and comprehensible framework of legislation governing statutory audit
in Ireland. Therefore the General Scheme also elevates the provisions of S.I. 312 of 2016 to
primary legislation.
Identification of Options
The full list of Member State options being taken under the Audit Directive and Regulation
are at Appendix 1 to this paper. An analysis of key Member State options being taken in this
General Scheme, that were not exercised in S.I. 312 of 2016, are set out in this regulatory
impact analysis. In considering the policy options, the Department assessed the responses
received to the stakeholder consultation and the views of the relevant Regulators,
Government Departments and Bodies.
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Part 1 - Directive 2014/56/EU amending Directive 2006/43/EC.
Introduction
The Directive applies to statutory audits of annual or consolidated accounts under EU Law.
The new Directive does not contain significant changes for the statutory audits of entities
that are not Public Interest Entities (PIEs). The significant changes in the new Directive are
for the auditors of PIEs and the system of public oversight and these are assessed in detail
below.
Definition of Public Interest Entities
The definition of a PIE is unchanged in substance from that provided for in the 2006
Directive. As then, there is an option for Member States to extend the designated list of
PIEs beyond those specified in Article 2(a-c). Ireland did not take up the option in
transposing the 2006 Directive. Article 2(d) sets out certain examples of grounds for
designation such as undertakings that are of significant public relevance because of the
nature of their business, their size or the number of their employees.
Policy Options Considered
The main policy option for consideration is whether there are entities or a class of entities
that should be designated as PIEs in addition to those already in scope of the Directive.
Designating additional entities under (d) as PIEs would mean that the requirements for the
statutory audit of PIEs set out in the Regulation and the Directive will then apply to such
entities.
Summary of Stakeholder Views
Most stakeholders who gave views on this option were opposed to adding to the definition
mainly due to the regulatory and cost burden for entities that are designated PIEs. One
stakeholder identified specifically categories of entities to add to the definition of PIEs at
this time (companies traded on alternative markets and credit unions). Another view was
that if possible the option to add to the PIE definition should be transposed in such a way so
as to allow the flexibility to designate additional entities as PIEs in future date, subject to
appropriate procedures.
Costs
The designation of additional entities as PIEs would mean that the designated entities would
be subject to the additional obligations set out in the Directive and Regulation and the cost
and regulatory implications set out in this impact assessment and the impact assessment for
S.I. 312 of 20161.
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https://www.djei.ie/en/Legislation/SI-No-312-of-2016.html
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Benefits
Extending the definition of PIEs could further enhance Ireland’s reputation for robust and
proportionate regulation.
Preferred Policy Option:
Significant justification was not found for adding a group of entities to the definition of
specific public-interest entities at this time. However, the option to designate new PIEs or
classes of PIEs is being exercised in the General Scheme such that entities may be designated as
public interest entities by way of any other enactment with the approval of the Oireachtas at a
future time.
Designation of Competent Authority
There are a number of key changes in the Directive and Regulation in relation to public
oversight.
Firstly, in the new Directive the definition of competent authority in Article 2.10 has
changed specifically removing the 2006 reference to ‘bodies’. Secondly, Article 32 of the
Directive sets out the principles of public oversight on which an effective system for
statutory auditors and audit firms can be organised. Article 32.4a states that “Member
States shall designate only one competent authority bearing the ultimate responsibility for
the tasks…” set out in the Article. These tasks are:- the approval and registration of statutory
auditors and audit firms; the adoption of standards on professional ethics, internal quality
control of audit firms and auditing; continuing education; quality assurance systems;
investigative and administrative disciplinary systems.
Member States can designate one or more competent authorities to carry out the tasks
provided for in Article 32 of the Directive but must designate only one competent authority
bearing the ultimate responsibility for the tasks. Member States have the option to delegate
or to allow the competent authority to delegate the tasks under the Directive to other
authorities or bodies. Member States must also provide that, where the competent
authority delegates tasks to other authorities or bodies, it shall be able to reclaim the
delegated tasks on a case-by-case basis.
S.I. No. 312 of 2016 currently provides for the oversight of statutory audit in line with the
requirements of the Directive and Regulation and IAASA is designated as the single
competent authority with responsibility for the oversight for statutory audit. IAASA is
responsible for the quality assurance inspections and investigations arising of the PIE audits.
That instrument assigns other tasks of approvals, continuing education, quality assurance
inspections and investigations arising of non-PIE audits directly to the RABs. Generally,
IAASA may take over a task assigned to the RABs where it is in the public interest and there
is a failure on the part of the RAB. In the case of investigations, IAASA may take over this
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task if it is in the public interest. The Companies Registration Office is responsible for
maintaining the public register and the Director of Corporate Enforcement is designated for
the purposes of taking certain administrative sanctions provided for under the Directive on
the directors of PIEs.
Policy Options Considered
The oversight model must meet the requirements of the Directive and Regulation and take
cognisance of new limits with respect to designation of RABs as competent authorities. A
important change as a result of the Directive and Regulation is the transfer of responsibility
for quality assurance and investigations and discipline as they relate to PIE audits to the
competent authority with ultimate responsibility. To date these functions have been the
responsibility of the RABs on behalf of their members. This is effectively a move from the
current supervised self-regulation system to an independent regulator for the audits of PIEs.
This is a requirement under the EU Regulation.
In addition, IAASA is now the competent authority with ultimate responsibility for all the
oversight tasks. However, it is appropriate that IAASA can continue to rely on the expertise
of the professional bodies in much of the day to day running of audit oversight. The
oversight framework should afford IAASA the flexibility and discretion it needs in relation to
public oversight while at the same time providing clarity and transparency for the
professional bodies and their members.
Summary of Stakeholder Views
Stakeholders who responded to this option expressed a range of perspectives on the
implications for public oversight under the Directive and Regulation. Broadly, stakeholders
were of the view that IAASA was the most appropriate competent authority for the
oversight of PIE auditors and PIE audits under the Regulation but that the responsibility for
the oversight of all other statutory audits should remain with the RABs. Stakeholders were
concerned that the new structures should not create an unnecessary regulatory or cost
burden. Similarly, some stakeholders were concerned that there should be clarity in the
structures and a multiplicity of competent authorities should be avoided. Where
stakeholders commented on the legal framework for oversight there was support for two
models i.e. directly assigning tasks to the RABs in the legislation as competent authorities
and a model where IAASA delegates the tasks to the RABs.
Costs
The costs of transferring the functions of oversight and investigation of PIE audits will be
recouped from the statutory auditors/audit firms of PIEs. This should not result in a
substantial increase in costs to those firms as to date this has been carried out by the RABs.
IAASA have allocated €1.7 million to carrying out this function in 2017. While the oversight
tasks (approval and registration, continuing education, quality assurance of non-PIE audits
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and investigations and discipline issues falling outside the remit of the EU Regulation) will
be delegated to the RABs, in line with IAASA’s role as the competent authority with ultimate
responsibility under the Directive, it must be able to reclaim a delegated task, in whole or in
part or in a particular instance, in order to carry out the task itself or to delegate it to
another RAB, as appropriate. In such circumstances it is considered appropriate that the
funding follows the function but it is not anticipated that this should lead to increase in
costs to the members of the RABs. In terms of differentiating between the two models of
oversight it is not anticipated that the costs of either should be significantly different.
Benefits
The new oversight structure will put in place a proportionate and effective monitoring and
oversight framework for statutory audit in Ireland. This approach will minimise cost and
disruption by keeping those features of the current structure that work well and making use
of the existing expertise and systems in the accountancy bodies. It will confer on IAASA the
necessary powers required to fulfil its role of competent authority with ultimate
responsibility for oversight. It is intended that this will optimise the regulatory burden and
minimise additional costs. For all entities subject to statutory audit and for auditors and
audit firms, the structures will be clear and transparent.
Preferred Policy Option:
While S.I. 312 of 2016 transposes the requirements of the EU the oversight framework it is
considered that the powers IAASA needs consistent with ‘ultimate responsibility’ should be
achieved through the delegation model.
The General Scheme proposes to exercise the option at Article 32 which permits Member
States to allow the competent authority, IAASA, to delegate the tasks under the Directive to
other authorities or bodies. Member States must also provide that, where the competent
authority delegates tasks to other authorities or bodies, it shall be able to reclaim the
delegated tasks on a case-by-case basis.
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Irish Auditing and Accounting Supervisory Authority (IAASA) will be designated as the
competent authority with ultimate responsibility for the purposes of the audit
Directive and Regulation
The Recognised Accountancy Bodies (RABs) will carry out tasks to the extent allowed
by the Directive and Regulation and these will be delegated to the bodies by IAASA
Companies Registration Office will continue to maintain the Public Register
The Director of Corporate Enforcement will continue to be designated as the
competent authority with the power to take certain administrative measures or
impose certain sanctions on directors of public interest entities.
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Audit Committee
While the Regulation is the primary legislative instrument containing provisions relating to
the statutory audits of PIEs, Article 39 of the Directive sets out the requirement for PIEs to
have an audit committee. This was also a requirement in the 2006 Directive. A key element
of the changes compared to then is the strengthening of the independence of the audit
committee. Article 39 now requires that the majority of committee members be
independent of the audited entity. There are a number of options that Member States may
also exercise in relation to the audit committee.
Article 39.1 requires at least one member of the audit committee shall have competence in
accounting and/or auditing but Member States may require a higher minimum number of
such members. Member States may require the Chair of the audit committee to be elected
annually by the general meeting of shareholders of the audited entity rather than appointed
by the Board of the entity as is the current practice.
In Article 39.2, Member States have an option to permit or require, in the case of certain
specified entities, the Board of the PIE to perform the functions of the audit committee
provided that where the Chair of the Board is an executive he/she shall not act as Chair
while the Board is acting as the audit committee.
Article 39.3 provides that Member States can derogate from Article 39.1 and may also
decide that certain PIEs are not required to have an audit committee. The categories are
set out in the Directive:
(a) Subsidiary undertakings
(b) Undertaking for collective investment in transferable securities (UCITs)
(c) Issuers of asset backed securities
(d) Certain credit institutions
The entities at (c) must also explain to the public the reasons they consider it is not
appropriate for them to have an audit committee. S.I. No. 312 of 2016 provided that this
explanation should be in the entity’s annual report or annual return to the Companies
Registrar or the Central Bank.
Article 39.4 allows Member States to further derogate from Article 39.1 and exempt PIEs
from having an audit committee providing the PIE has a body or bodies performing
equivalent functions and discloses how the body carries out these functions and how it is
composed.
Finally, a new option at Article 39.5 allows Member States to set aside the independence
requirements where all the members of the audit committee are also members of the Board
of the PIE.
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Policy Options Considered
S.I. 312 of 2016 exercised a series of the options above in relation to the audit committee as
follows:
 To provide that at least one member of the audit committee has competence in
accounting and/or auditing
 To continue the current situation where the Chair of the audit committee is
appointed by the Board
 To continue to provide for the exemption for certain PIEs, (a) to (d) above, to have
an audit committee
It did not exercise the option to set aside independence requirements where all the
members of the audit committee are also members of the Board of the PIE.
During the development of the General Scheme two other options were further considered
in consultation with the Central Bank.
 To take the option to allow Boards to act as the audit committee of certain PIEs
 To take the option to exempt certain PIEs from having an audit committee where it
has a body or bodies performing equivalent functions
Summary of Stakeholder Views
There was some support for the option to allow the Board of certain PIEs that are SMEs of a
certain size or entities having a market capitalisation of less than €100m under the
Prospectus Directive to perform the functions of the audit committee. While it was felt by a
number of stakeholders that this option was not particularly relevant in an Irish context,
further consultation with the Central Bank has established that this option is of relevance to
Ireland.
There was a more mixed response from stakeholders in relation to the option to allow
Member States to further derogate from Article 39.1. This option would allow PIEs an
exemption from having an audit committee providing the PIE has a body performing
equivalent functions and discloses how the body carries out these functions. Some
stakeholders did not see compelling reasons for or against this option. Others felt that
taking the option as it afforded flexibility and could give Ireland a competitive advantage
and one stakeholder did not support taking the option as audit committees support public
confidence in audit. Again further consultation with the Central Bank since S.I. 312 of 2016
was signed has concluded that taking this option would be of relevance in the case of
captive insurers and reinsurers. These entities had an optional exemption from the
requirement to have an audit committee under the 2006 Directive but the option was
deleted by the 2014 Directive.
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Costs
The EU Commission Impact Assessment estimated the costs of the strengthened audit
committee as follows:
Table 1: Strengthened Audit Committee
Type of cost
Units
Estimation (€)
Total cost per PIE
(€)
Regular (additional)
meetings between
auditors
and audit committee
members on yearly
basis
3
7200
21600
Additional number of
expert days for audit
committee members
20
1600
32000
Total
53600
For a PIE that has been exempt from the requirement to have an audit committee to date
there would be additional monetary and administrative costs associated with the
establishment and ongoing functions of the committee.
Benefits
The objective of this transposition is to align the requirements for audit committees with
auditing standards requirements and other sector specific codes as far as possible. Such an
approach should result in a consistent regulatory framework for relevant entities.
Preferred Policy option:
 To take the option to allow Boards to act as the audit committee of certain PIEs
 To take the option to exempt captive insurers and reinsurers from having an audit
committee where it has a body or bodies performing equivalent functions.
Qualifications, Education and Training
There are a number of options in Article 9-14 of the Directive that provide for alternative
approaches to education and training requirements for auditors. In general, stakeholders
who responded to these options did not wish to see these options exercised as in their view
such changes to education and training requirements would undermine Ireland’s reputation
for high standards in the field of audit qualifications and auditor quality. S.I. 312 of 2016 in
followed the approach taken in the transposition of the 2006 Directive with the objective of
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continuing to support these high standards. One additional option is being exercised in the
General Scheme.
Article 9 – Exemptions from certain examination/test requirements
This option allows the setting aside of the requirements of Article 7 (“Examination of
professional competence”) and 8 (“Test of theoretical knowledge”) to rely instead on the
passing of other specified exams/holding certain qualifications/ equivalent qualification in
one or more of the subjects listed at Article 8 so as to avail of the exemption from the
theoretical knowledge test in those same subjects. It is proposed to take this option and
permit IAASA to set the appropriate criteria for the exemption.
International Auditing Standards - Article 26
S.I. 312 of 2016 conferred on IAASA the responsibility for adopting national auditing
standards as long as the Commission has not adopted an international auditing standard on
the same subject matter.
Two further options in this Article were not exercised in S.I. 312 of 2016 as they were
beyond the scope of the secondary instrument. Firstly, Member States may add to the
international standards that the Commission may adopt, in certain circumstances.
Stakeholders had mixed views. Some felt this option was a prudent approach to allow for
circumstances where Ireland needed to add to International Standards on Auditing (ISA)
that might be prescribed by the Commission. Others felt that this option could lead to
national ‘gold plating’ of these standards and the fragmentation of international standards.
The further option allows for the simplification of standards for small undertakings.
Stakeholders were divided between supporting this approach in principle, acknowledging
that the current system of standards has some scope already for a proportionate approach
to small undertakings and those stakeholders who felt that a clear and unambiguous
regulatory regime would be better supported by continuing to rely on the audit exemption
in the Companies Act 2014 to exclude small undertakings.
It is proposed to take these two options in the General Scheme for the flexibility they afford
IAASA in the function of adopting standards.
Article 28 – Audit Report
The 2006 Directive set out the requirement for an Audit Report. The 2014 Directive now
includes detailed requirements for the content of the Audit Report. The content
requirements are based on current international standards and are set out in section 336 of
the Companies Act 2014.
Member States can exercise an option to add to the requirements of the audit report. Again
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stakeholders who gave views on this option sought consistency between the audit report
requirements that would be set out in legislation and those in auditing standards. While
they did not see the need for additional requirements to be added to the report currently,
some stakeholders could see the need to leave scope for changes in the future. It is
intended to provide for this option in the Bill and permit IAASA to add to the content
requirements of the audit report as appropriate.
Article 30 – Systems of Investigations and Sanctions
Article 30 sets out the requirement for Member States to put in place systems of
investigations and sanctions. It is significantly expanded in detail compared to the 2006
Directive. It contains seven new Member State options.
The first option at Article 30. 1 allows Member States not to provide for the application of
administrative sanctions regimes under the Directive and the Regulation where national
criminal law already applies to the infringements in question. Stakeholders were divided on
this option. Some felt that current regime is effective and that this is supported by not
taking this option. Others felt that the option should be taken as if an infringement is
already subject to criminal law it should not have an additional sanction imposed.
The second new option at Article 30.3 allows Member States to decide that to withhold
personal data in the disclosure to the public of measures/sanctions imposed on statutory
auditors/audit firms. Stakeholders were generally supportive of taking this option for
flexibility however a number pointed out that currently there is full disclosure of measures
and sanctions applied to statutory auditors and audit firms by the RABs.
The provisions of Article 30a.1 and 30a.3 direct Member States to provide the competent
authorities with powers to take and/or impose at least the administrative
measures/sanctions for breaches of the Directive and, as applicable, the Regulation.
Member States can add to these sanctions. Some stakeholders felt that the sanctioning
measures as provided were sufficient while others were of the view that additional powers
or the flexibility to add to the powers would be appropriate. Some stakeholders who
responded to these options also gave views on how the oversight system might work in this
context.
The next option in this Article allows Member States to derogate from the provisions of
paragraph 1 to give authorities supervising public-interest entities not designated under
Article 20.2 of the Regulation sanctioning powers for breaches of reporting duties under the
Regulation.
The last series of options in Article 30c address the question of publication of sanctions and
measures. Firstly, competent authorities must publish at least the sanction and may publish
additional information in respect of administrative sanctions imposed, secondly Member
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States can permit the publication of sanctions that are subject to appeal (Article 30c.1).
Thirdly, Member States can choose to withhold personal data from publication (Article
30c.3). Stakeholders had mixed views on these issues being both for and against in almost
equal measure.
Preferred Policy option:
Only one of these options, Article 30c.1 in relation to the publication of sanctions was
exercised in S.I. 312 of 2016. It is now proposed to take the options at Article 30a.1 and
30a.3 in order to add to the sanction powers set out in the Directive. It is not proposed to
exercise the other options.
IAASA as the competent authority will have the power to impose the sanctions set out in
the Directive on statutory auditors and audit firms for breaches of the Directive and
Regulation. In the case of sanctions which may be applied on the directors of PIEs who have
contributed to a breach by a statutory auditor or audit firm, these will be administered by
the Office of the Director of Corporate Enforcement. The more significant sanctions shall be
subject to confirmation by the High Court.
In addition the General Scheme provides for new procedures for IAASA in relation to
investigations. The provisions are not required by the Directive or Regulation. However
they are considered necessary to support an effective and proportionate enforcement
regime. IAASA will have new powers to delegate the function of investigations from the
Board to officers, employees or other designated persons. A new stepped investigation
procedure, termed an assessment in the General Scheme, will be provided for and it will
allow that at any time during this assessment or investigation process, IAASA may enter
into a settlement with a statutory auditor or audit firm including the imposition of an
administrative sanction. It will also permit this procedure to be used for investigations into
members of Prescribed Accountancy Bodies (PABs) for breaches of the standards of the
body. PABs are the nine bodies that come under IAASA’s supervisory remit.
The settlement procedures will be used where this is the appropriate regulatory response
and will avoid the costs and burden of lengthy proceedings while ensuring fair process.
Minimum Harmonisation
Article 52 allows Member States to apply more stringent requirements than those set out in
the Directive. Stakeholders were not supportive of taking the option on the basis that a level
playing field across the EU should be maintained as far as possible in particular to safeguard
Ireland’s competitiveness vis a vis other Member States. More stringent requirements for
statutory audit should be considered on a case by case basis.
17
Part 2 – Regulation (EU) 537/2014
Introduction
The Audit Regulation introduces stricter requirements for the statutory audit of the annual
or consolidated accounts of PIEs because of their profile and systemic importance. The
Regulation is directly applicable in all EU countries. This means that it applies immediately as
the norm in all EU countries, without needing to be transposed into national law. That said
elements of the Regulation are given effect in national law in S.I. 312 of 2016 including the
designation of the competent authority and some Member State options. An EU Regulation
containing Member State options is unusual and it will inevitably result in different rules
being applied across EU Member States rather than the harmonised approach that is
generally the rationale of EU Regulations.
Independence - Article 4 - Caps on Audit Fees and Non-Audit Services Fees
As set out in the EU’s high level policy objectives for the audit reform package, a strong
independence regime between the audited entity and audit firm is central to the changes
proposed in the legislative package. Investors and shareholders rely on financial statements
of companies and the auditor’s independent assessment of these financial statements.
Article 4 and 5 are integral to this element of the new regime. The position on the options
taken in S.I. 312 of 2016 in relation to these articles is unchanged. Article 4.2 of the
Regulation restricts the level of non-audit services (other than those set out at Article 5.1)
that may be provided by auditors/audit firms to PIE clients to no more than 70% of the
average of the audit fees charged in the preceding three years. An option available to
Member States is to exercise an exemption from the threshold for non-audit services
income for a maximum two year period and which should be provided on an “exceptional
basis” to address exceptional situations which may arise.
Summary of Stakeholder Views
Not all Stakeholders addressed the option of the two year derogation on an exceptional
basis in their submissions. Of those stakeholders that did address the option, they were
supportive as it would allow for unforeseen circumstances. Examples of such circumstances
included unanticipated due diligence, special investigations, responding to requests from
regulators, mergers, and IPOs etc. It was felt that approval by a competent authority of the
derogation on a case by case basis would provide an appropriate safeguard. One
respondent did not support the option on the basis that the availability of the exemption
could lead to avoidance of the 70% cap.
Preferred Policy Option:
The question of the need for exemption for an individual PIE does not arise until 2019 thus
allowing organisations effected to prepare for the impact of the 70% cap. Nonetheless, it is
considered appropriate to allow for exceptional cases arising and to provide for the option
18
in the General Scheme. IAASA will decide on the exemption on exceptional grounds on a
case by case basis.
Additional Reporting and Record Keeping Requirements1
Articles 10-15 of the Regulation contain a series of obligations in relation to additional
reporting for audits of PIEs.
Article 28 of the Directive sets out the requirement for the results of all statutory audits to
be presented in an audit report. Article 10 of the Regulation sets out additional
requirements to those set out in the Directive for the content of audit reports of PIEs.
Member States have an option in this Article to impose additional requirements in relation
to the augmented audit report for PIEs.
Article 11 provides that auditors must provide a separate report to the audit committee of a
PIE on their audit work and sets out the detail of what the report should comprise. The
auditor/audit firm is required to make this additional report available to the competent
authorities, IAASA, on request and in accordance with national law. Member States can
require that this additional report is submitted to the administrative or supervisory body of
the audited entity i.e. the directors of the entity. Member States can also allow the audit
committee to disclose this report to prescribed third parties. Member States also have an
option to impose additional requirements in relation to the content of this additional report.
Article 12 provides that auditors/audit firms of a PIE are required to promptly report to the
competent authority for the oversight of that PIE, or to the oversight body of the
auditor/audit firm, information which has come to notice of the auditor/audit firm in the
conduct of the audit which could bring about any of the outcomes set out at Article
12(1)(a), (b) or (c). This information must also be reported by the auditor/audit firm in
relation to an undertaking having “close links” (as defined at Article 4.1 of Regulation
575/20132) with the PIE being audited, and in respect of which, the auditor/audit firm is
also carrying out the statutory audit. Member States may also require additional
information from the auditor/audit firm provided it is necessary for effective financial
market supervision as provided for in national law.
1
Article 13 of the Regulation sets out the requirements for the Transparency Report. There are no Member
State options and the EU Regulation has direct effect.
2
close links‧ means a situation in which two or more natural or legal persons are linked in any of the following
ways: (a) participation in the form of ownership, direct or by way of control, of 20 % or more of the voting
rights or capital of an undertaking; (b) control; (c) a permanent link of both or all of them to the same third
person by a control relationship;
19
Policy Options Considered
The policy options considered were firstly whether to require additional information in the
audit report and/or the additional report to the audit committee. Secondly, in relation to
the additional report to the audit committee, whether to create an obligation that this
report should be submitted either to the Board of the PIE and/or other third parties.
Thirdly, in relation to the Article 12 reports what are the appropriate bodies to whom these
reports should be submitted and should additional information be required in such reports.
Summary of Stakeholder Views
Overall in relation to these reporting requirements, stakeholders wanted to see consistency
with existing requirements in applicable auditing standards and national law.
In relation to the Audit Report in Article 10, stakeholders did not see a need to require
additional information in Irish law and some were opposed to doing so at a national level on
the basis that Ireland should maintain alignment with EU and international standards on
auditing. However, other stakeholders could see merit in taking the option to allow for
changes in the future for example through changes in standards or other evolving
requirements, as long as any changes are subject to appropriate consultation.
On the disclosure of the Article 11 additional report to the wider Board, generally
stakeholders felt that this option was less relevant to Ireland as there is a unitary Board
system1, which should see this information as a matter of course in the course of approving
the financial statements, but had no objection to the option. In relation to the disclosure of
the additional report to third parties, the views were slightly more mixed with some
stakeholders supportive of providing for such disclosure and other of the view that this could
cause confusion given existing reporting requirements to the Central Bank. The Revenue
Commissioners suggested the information would be useful for them, the Central Bank and
the National Employment Rights Authority (now the Workplace Relations Commission). On
the possibility of additional requirements for the content of the report, stakeholders
expressed similar views to those expressed in relation to the Audit Report above that is to
aim for consistency with auditing standards but keep open the option for the future.
Under existing enactments the information analogous to the Article 12 report must already
be supplied to the Central Bank by the auditors of PIEs under their supervision and many
stakeholders pointed to this existing requirement. The Central Bank was supportive of taking
the option to require additional information depending on future developments as this has
recently been introduced in Regulation 52 of the EU (Capital Requirements) Regulations 2014
(S.I. No. 158 of 2014). A small number of stakeholders supported taking the option but most
stakeholders who responded were less supportive on the basis that such reporting
requirements already exist in national law.
1
Some EU Member States have a two board system comprising an executive board and a supervisory board.
20
Costs and Benefits
The main costs of adding to the requirements for any or all of these reports will relate to the
additional time and expertise required to complete the report as well as the time spent on
the discussion of the report by the Audit Committee. A key issue is maintaining clarity in
relation to reporting obligations and to ensure that any additional reporting obligations
necessitated by the Regulation are streamlined with existing reporting structures in order to
optimise the compliance burden for business. The EU Commission Impact Assessment
estimated the cost of the strengthened reporting obligations as follows:
Audit Report - Additional Requirements for PIEs
8 Hours @ 600 per hour = €4800
Table 3: Additional Report to Audit Committee
Type of PIE
Estimation of
Estimation of hourly
hours
rate (€)
Total cost per PIE
(€)
Small PIE uncomplicated
engagement
6
600
3600
Mid-size company
Large PIE
40
80
600
60
24000
48000
Any reporting requirements imposed by Member States will potentially add to the costs of
the reports although this would be expected to be marginal. The main benefits to the
audited entity, investors and prescribed third parties of the reports overall will be a better
understanding of the scope of the audit and evaluation of the accounts of the PIEs. The
object of additional reporting requirements should be to reduce expectation and information
gaps and enhance transparency.
Preferred Policy Option:
A key consideration in relation to each of these additional options where further reporting
obligations are imposed is the extent to which they might duplicate existing reporting
obligations. A further consideration is the relevance and use to which the information
contained in the reports would be put should they be sent to third parties.


To take the options to add to the content of the reports at Articles 10, 11 and 12 as
enabling provisions which can be taken in future.
To take the option in Article 11 that the additional report to the audit committee
should be made available to prescribed third parties on request where it is necessary
for that body to carry out its functions:
1. The Supervisory Authority (IAASA)
21
2.
3.
4.
5.
The Director of Corporate Enforcement
The Revenue Commissioners
The Workplace Relations Commission
Any body responsible for regulation of the public-interest entity
Public Auditors
The Industrial and Provident Societies Acts 1893 to 2014 and the Friendly Societies Acts
1896 to 2014 regulate Industrial and Provident Societies (mainly Co-operatives) and Friendly
Societies. At the end of 2015 there were 900 Industrial and Provident Societies and 48
Friendly Societies on the Register of Friendly Societies.
Under the Industrial and Provident Societies Acts 1893 to 2014 and the Friendly Societies
Acts 1896 to 2014 there is a requirement that societies must have their accounts audited by
a public auditor. These late 19th century Acts required public auditors were originally
appointed by the Treasury and subsequently by the Minister for Jobs, Enterprise and
Innovation under the Registry of Friendly Societies Act 1936. Subsequent amendments to
the Companies Acts have effectively prevented new public auditors from being approved.
The General Scheme proposes to amend the Industrial and Provident Societies Acts and
Friendly Societies Acts by deleting the term public auditor and replacing it with a statutory
auditor as defined in section 2 of the Companies Act 2014. This is because the concept of
public auditor is no longer necessary and has been superseded by the framework for
statutory auditors.
It is also proposed to provide that an incorporated audit firm may audit the accounts of the
Industrial and Provident Societies and the Friendly Societies. Currently where auditors have
incorporated, the firm of auditors are not permitted to audit these accounts.
Costs and Benefits
There should be no costs arising for the entities concerned from this change as the
requirement for an audit is unchanged. There should be benefit to the entities concerned
as the pool of auditors qualified and permitted to audit annual accounts of the entities
concerned will increase significantly and will now include audit firms.
Filing deadlines for annual returns
The General Scheme brings forward an amendment to the rules on filing an annual return in
section 343 of the Companies Act 2014. Currently failure to do so on time results in the loss
of the audit exemption available to small and medium sized companies over two years. Prior
to the introduction of this rule the CRO reported 13% compliance with the timely filing of
annual returns. This improved to over 90% when associated with the audit exemption.
However, this policy approach is being undermined by the broad exemption provided for in
the current wording of this section which allows applicants to seek an extension from the
22
court. The provision is being used too freely and the advancements made in relation to
timely filing are being undermined.
The requirement for the timely filing of the annual return by companies is in return for the
protections of limited liability afforded to directors of companies by company law.
Therefore it is proposed to clarify the provision by providing that it be used in ‘exceptional’
circumstances only and where an extension to the time period for filing of accounts is
permitted by the court, the audit exemption shall be lost.
Costs and Benefits
Section 343 is a remedy for companies who for an exceptional reason are unable to file an
annual return on time. Companies who employ this remedy incur the costs of late filing fees
and a court appearance. The additional cost will be the cost of audits due to the loss of the
audit exemption.
Limited liability is a privilege that attaches to good corporate governance including timely
filing. Creditors, potential creditors and others dependent on the assurance of the financial
health of a limited company of any size should have timely access to financial information in
relation to that company. The compliance rate in relation to the annual return is an
important and visible metric of business transparency in Ireland. The loss of the audit
exemption for late filing companies is central to creating a culture of compliance and
supporting good corporate governance practices.
23
Part 4 – Summary of Impacts of the Audit Reform Package, removal of
the term Public Auditor and changes to rules on file an annual return
National Competitiveness
Where particular Member State options in the audit reform package gave rise to concerns
about national competitiveness amongst stakeholders these have been analysed in that
context as appropriate in this RIA and in the RIA for S.I. 312 of 2016. Stakeholders were
concerned that there should be a level playing field across the EU and harmonized rules as
far as possible. As the Regulation contains a number of options which Member States are
choosing to implement differently there will not be full harmonization across the EU. There
are significant positive competitiveness impacts of a robust regulatory regime that both
enhances investor protection and Ireland’s international reputation. There are no
competitiveness issues arising from the change to public auditors and the amendment to
the rules on the extension of the filing date.
Whether there is a significant policy change in an economic market, including consumer
and competition impact
Provision of audit services to PIEs is highly concentrated amongst a small number of large
audit firms in Ireland and across the EU. One of objectives of the audit reform package is to
increase competition in the market for audit services and non-audit services. The
combination of measures to enhance independence between the auditor and audited entity
set out in the Audit Regulation have the potential to open up the markets for audit and nonaudit services for PIEs to a wider range of firms leading to greater competition in the
market.
Compliance Burden
There should be proportionate compliance impact on audit firms arising from the oversight
tasks in the Directive and Regulation i.e. the approval and registration of statutory auditors
and audit firms; the adoption of standards on professional ethics, internal quality control of
audit firms and auditing; continuing education; quality assurance systems; investigative and
administrative disciplinary systems. These tasks are already being carried out under the
existing regulatory structures. The EU Regulation has introduced some additional
requirements in relation to the audit of PIEs which are directly applicable and will impact on
statutory auditors and audit firms of PIEs and PIEs. To the extent possible, these are
organised so as to minimize the compliance burden consistent with framing these
obligations in national law. e.g. exercising exemptions for certain PIEs from having audit
committees and additional auditor reporting requirements under Article 12 are only
required where these are not currently being made to the Central Bank.
In relation to the amendment to the rules on the extension of the filing date there is no
additional compliance burden per se as the requirement to file an annual return is
24
unchanged. There are no compliance issues arising from the change to public auditors.
North-South and East-West Relations
Four recognised accountancy bodies in Ireland operate in the UK and Northern Ireland also
and the transposition took cognisance as far as practicable of cross-border issues. There are
no issues arising from the change to public auditors and the amendment to the rules on the
extension of the filing date.
Other Considerations
There are no impacts on the socially excluded and vulnerable groups, the environment and
the rights of citizens.
25
Appendix 1
Directive and Regulation
Options being taken in Companies (Statutory Audits) Bill 2017
Article
Head
Options
Approach
Directive
2
3
Designating additional Public Interest
entities (PIEs).
Enable an entity to be
designated as a PIE by
any enactment.
3a
50
Recognition of audit firms – host Member
State may require certificate issued by
Competent Authority in home Member
State to be not more than three months
old.
Option taken in S.I. 312
of 2016.
5.1
63
Withdrawal of approval – Member States
may provide for a reasonable period of
time for the purposes of meeting the
requirements of good repute.
Option taken in S.I. 312
of 2016 2016 and
provided for a period of
“not less than a
month”.
5.2
63
Withdrawal of approval – Member States
may provide for a reasonable period of
time for the purpose of fulfilling specified
conditions.
Option taken in S.I.
312 of 2016 and
provided for a period
of “not less than a
month”.
9
56
Exemptions – Member States may provide
that a person who has passed certain
exams/holds a degree may be exempted
from the test of theoretical knowledge in
subjects covered by that exam/degree.
Take option and include
appropriate conditions,
i.e. criteria that might
be set from time to
time by IAASA.
14
60
Approval of statutory auditors from other
Member States – host Member State shall
decide whether adaptation period or an
aptitude test applies.
Option taken in S.I. 312
of 2016 of aptitude test.
20
71
Language – Member States may allow the
information entered in the public register
in any other official language of the EU.
Option taken in S.I. 312
of 2016 – English or
Irish can be used.
26.1
93
Auditing Standards – Member States may
Option taken in S.I. 312
apply national auditing standards as long as of 2016. IAASA adopts
26
Article
Head
Options
the EU Commission has not adopted an
international auditing standard.
Approach
auditing standards.
26.4
93
Add to International Auditing Standards –
Member States may impose audit
procedures or requirements in addition to
the international auditing standards.
Take option.
26.5
93
Proportionate application of auditing
standards to small undertakings – Member
States may take measures to ensure this.
Take option.
28
S. 336
Audit reporting – Member States may lay
down additional requirements re the
content of the audit report.
Take option.
30a.1
S. 934A
Sanctioning powers – Member States to
provide for Competent Authority to have
the power to take and/or impose at least
certain administrative measures and
sanctions – may add to these.
Take option and add to
the list of sanctions.
30a.3
S. 934A
Sanctioning powers – Member States may
confer on Competent Authority other
sanctioning powers.
Take option and add to
the list of sanctions.
30c.1
S. 934E
Publication of sanctions and measures –
Competent Authority shall publish on their
website at least any administrative
sanction imposed and also information
concerning status and outcome of any
appeal.
Option taken in S.I. 312
of 2016.
32
46
Principles of public oversight – Member
States may delegate or allow the
Competent Authority to delegate any of its
tasks.
Take option and give
IAASA powers to
delegate to recognised
accountancy bodies.
36
127(4)
Professional secrecy and regulatory
cooperation between Member States –
Member States may allow Competent
Authority to transmit confidential
information to specified authorities/banks
for the performance of their tasks.
Option taken in S.I. 312
of 2016.
27
Article
37
Head
S. 382,
384, 385
Options
Appointment of statutory auditors or audit
firms – Member States may allow
alternative systems or modalities for the
appointment of the statutory auditor/audit
firm.
39.3
118
Audit Committee – Member States may
Option taken in S.I. 312
decide that specific PIEs are not required to of 2016.
have an audit committee.
39.2
118
Take option to permit
Board to act as audit
committee.
39.4
118
Audit Committee – Member states may
allow Board of certain PIEs under the
Prospectus Directive (SMEs & Small
capitalisation firms) act as audit
committee.
Audit Committee – Member States may
require or allow a PIE not to have an audit
committee provided that it has a body or
bodies performing equivalent functions.
45
142
Registration and oversight of third-country
auditors and audit entities – Member
States may assess equivalence (audits
carried out in accordance with
international auditing standards or with
equivalent standards) as long as the
Commission has not taken any such
decision.
Option taken in S.I. 312
of 2016.
46.1
144
Derogation in the case of equivalence –
Member States may disapply or modify the
requirements re registration of third
country auditors/audit entities on the basis
of reciprocity and where equivalent
systems of public oversight apply.
Option taken in S.I. 312
of 2016.
46.2
144
Derogation in the case of equivalence –
Member States may decide to rely on
equivalence partially or entirely and thus to
disapply or modify the requirements in
Article 45(1) either partially or entirely.
Option taken in S.I. 312
of 2016.
47.1
134
Cooperation with C ompetent Authorities
from third countries – Member States may
allow the transfer to Competent Authority
Option taken in S.I. 312
of 2016.
28
Approach
Option taken in S.I. 312
of 2016.
Take option to permit
captive insurers and
reinsurers to do this.
Article
Head
Options
of a third county of audit working papers or
other documents.
47.4
135
Cooperation with C ompetent Authorities
Option taken in S.I. 312
from third countries – Member States may of 2016.
allow statutory auditors/audit firms
approved by them to transfer audit working
papers and other documents directly to the
Competent Authority of a third country
under certain conditions.
Regulation
4.2
-
Approach
Audit Fees – Member States may provide
for cap of 70% or less for non-audit
services.
Option taken in S.I. 312
of 2016 of setting cap at
70%.
This option has direct
effect.
4.2
112
Audit Fees – Member States may provide
for exemption from 70% cap in exceptional
circumstances.
Take option to cater for
exceptional
circumstances.
4.4
-
Audit Fees – Member States may apply
more stringent requirements than 15%
threshold for fee income from one client.
Option of 15%
threshold taken in S.I.
312 of 2016.
This option has direct
effect.
5.3
117
Prohibition of provision of non-audit
services – Member States may allow the
provision of certain services, such as tax
and valuation.
Option taken in S.I. 312
of 2016.
10
Dir 28
S. 336
Audit Report – Member States may lay
down additional requirements re content
of the audit report.
Take option to allow for
maximum flexibility as
regards the evolving
content of the audit
report.
11.1(1)
96
Additional report to Audit Committee –
Member States may additionally require
the additional report be submitted to
supervisory body of audited entity.
Take option.
11.1(2)
96
Additional report to Audit Committee –
Take option.
29
Article
Head
Options
Member States may allow the audit
committee to disclose additional report to
3rd parties provided for in national law.
Approach
11.2
96
Additional report to Audit Committee –
Member States may lay down additional
content of additional report.
Take option.
12
97
Report to supervisors of PIEs – Member
States may require additional information
from statutory auditor/audit firm.
Provide for requirement
for “such additional
information as the
Central Bank may
determine necessary”.
15
98
Record keeping – Member States may
require statutory auditors/audit firms to
keep records for longer than 5 years.
Option taken in S.I. 312
of 2016 – 6 years.
17.7
113
Duration of audit engagement for PIEs –
Member States may require the key audit
partner rotate earlier than 7 years.
Option taken in S.I. 312
of 2016 – 5 years.
24.4
46
Delegation of tasks – Member States may
decide to delegate specific tasks to certain
bodies.
Option taken in S.I. 312
of 2016 – the Director
of Corporate
Enforcement has a role
in relation to the
application of sanctions
on directors of PIEs.
28
75
Publication of quality assurance inspection
findings – Member States may require the
publication of findings and conclusions on
individual inspections undertaken as part
of the quality assurance system.
Option taken in S.I. 312
of 2016.
30