EU audit legislation
Understanding the legislation and how it will affect you
This information is for all companies with operations in the EU, regardless of where in the world they are headquartered. It is designed to help companies understand the new EU audit legislation and how it may affect them.
What has changed?
On 16 June 2014, new EU audit legislation entered into force. The legislation is wide-ranging and includes a mandatory audit firm rotation for EU Public Interest Entities (PIEs) and significant restrictions on non-audit services an EU PIE can obtain from its auditor.
EU Member States have until June 2016 to implement the legislation into their national laws, although the requirements for audit firm rotation are introduced over a longer period.
The legislation includes a large number of Member State options, which will lead to inconsistent application and create a patchwork of different national requirements. We do not yet have a complete picture.
Complying with the legislation will require advance planning, however, and companies should take steps now to understand if and how the legislation will affect them or their EU subsidiaries.
Will the legislation affect my company?
The legislation is generally directed at audits of EU PIEs. The legislation also applies to EU PIE subsidiaries of companies headquartered outside the EU.
Therefore, all companies with EU operations, wherever headquartered, will have to review their group structure to establish whether they are an EU PIE or have an EU PIE in their group. Many large multinational groups are likely to have more than one EU PIE.
The rest of this guide helps you determine if your company is an EU PIE or if you have an EU PIE in your group.
“All companies with EU operations, wherever headquartered, will have to establish whether they are an EU Public Interest Entity or have an EU Public Interest Entity in their group.”
Understanding if your company is an EU PIE or if you have an EU PIE in your group
The PIE concept is not new; an EU PIE definition was already included in the Statutory Audit Directive of 2006. The underlying EU PIE definition has not changed in the new legislation, although its scope has been expanded.
As with the 2006 definition, the new legislation continues to allow the 28 EU Member States to supplement the PIE definition to include certain additional companies. Member States have until 16 June 2016 to bring their existing PIE definition into line with the new legislation, and we do not yet know how each Member State will do so.
However, we do know how Member States have applied the existing 2006 definition, and this provides some guidance for the future.
Therefore, determining if you are an EU PIE is a two- step process:
- Determine if you are covered by the baseline EU PIE definition (Chapter 2: EU PIE definition)
- Understand how the Member State in which you are incorporated has implemented the existing EU PIE definition (Chapter 3: Member States PIE definitions)
Considerations for groups of companies
The EU PIE definition applies to individual entities. There are no separate rules for groups of companies. Many large multinational groups are likely to have more than one PIE in the EU. In the case of a group of companies, the questions in part 1 should be answered from the perspective of each individual group company.
Note: Information as of October 2014