1. Annual Conference of the Lithuanian Chamber of Auditors
Palanga, 8 June 2007
Olivier Boutellis-Taft, CEO

2. About FEE

3. The European Federation of Accountants
Standing for the accountancy profession in Europe
Grouping 44 Member Bodies from 32 countries
Representing a combined membership of over accountants
45% in public practice
55% in industry, commerce, government and education
European Federation of Accountants - Fédération des Experts Comptables Européens

4. FEE: Working for its 44 Members
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European Federation of Accountants - Fédération des Experts Comptables Européens

5. FEE Objectives
Advancing the interests of the European Profession – recognising the public interest
Fostering a harmonised and liberalised regulation and practice of accountancy and audit in Europe
Promoting co-operation among Members
Identifying public policy developments and influencing outcome
Making representation to the EU institutions and to international organisations
European Federation of Accountants - Fédération des Experts Comptables Européens

6. FEE Governance General Assembly All Member Bodies
Constitutional matters
Council
1 Representative / Country
(+ technical advisor)
Strategic & political decisions
Elects
Appoints
Executive
President + Deputy
Vice-Presidents (incl. Treasurer)
CEO
Implementation of Council’s decisions
Prepares positions
Appoints
Working Parties
Reports
European Federation of Accountants - Fédération des Experts Comptables Européens

7. FEE Membership Ordinary Members Take part in the work
Participate to meetings and decision making
Participate to all Working Parties
Agree to abide by the Constitution
Fund the Federation
Correspondent Members
Receive information
Attend meetings and are informed of decisions
Are invited by Council to certain Working Parties
Agree to abide by the Constitution
Fund the Federation
European Federation of Accountants - Fédération des Experts Comptables Européens

8. Key Principles of Quality Assurance: the Statutory Audit Directive

9. Audit Quality?
“the accuracy of the information reported on by auditors” (Titman and Trueman, 1986; Beatty, 1989; Davidson and Neu, 1993)
“the market-assessed probability that the financial statements contain material errors and that the auditor will both discover and report them” (DeAngelo, 198I)
“the probability that an auditor will not issue an unqualified report for statements containing material errors” (Lee et al., 1999)
“the degree to which the audit conforms to applicable auditing standards” (Krishnan and Schauer, 2001; Tie, 1999; McConnell and Banks, 1998; Aldhizer et al., 1995; Cook, 1987)
European Federation of Accountants - Fédération des Experts Comptables Européens

10. FEE’s Vision of Audit Quality
Audit quality is primarily about delivering an appropriate professional opinion on the financial statements of a company
Drivers of audit quality include:
Leadership, including tone at the top and audit firm strategy
People of competence, quality, objectivity and integrity
Working practices and quality control procedures
Internal monitoring by audit firms of leadership, people, client relationships and working practices
External monitoring under public oversight to encourage and assist audit firms to improve audit quality
European Federation of Accountants - Fédération des Experts Comptables Européens

11. Timeline 90s: Firms’ internal initiatives
28 October 1996: Green Paper on the Role, Position or Responsibilities of Statutory Auditors in the EU
8 May 1998: EU communication ‘Statutory Audit in the European Union – The Way Forward’ – Committee on Auditing
15 November 2000: EU Recommendation ‘Quality Assurance for statutory audit’
16 May 2002: EU recommendation ‘Statutory Auditors’ Independence in the EU’
17 May 2006: Statutory Audit Directive – integrates the principles of the 2000 EU Recommendation on Quality Assurance and goes beyond
2007: Possible review of 2000 EU Recommendation on Quality Assurance
European Federation of Accountants - Fédération des Experts Comptables Européens

12. Quality Assurance Systems
Must be independent from the reviewed statutory auditors and audit firms
Subject to public oversight
Have adequate resources
Secured funding, free from any undue influence by auditors
European Federation of Accountants - Fédération des Experts Comptables Européens

13. Objectives of QA Reviews
Carry out adequate testing of selected audit files to assess:
internal quality control of the firm
compliance with auditing standards
compliance with independence requirements
quantity and quality of resources spent
audit fees
European Federation of Accountants - Fédération des Experts Comptables Européens

14. Quality Assurance Reviewers
Must have appropriate professional education and relevant experience in statutory audit and financial reporting
Specific training on quality assurance reviews
Selected through an objective procedure
No conflicts of interest with the statutory auditor or audit firm under review
European Federation of Accountants - Fédération des Experts Comptables Européens

15. Quality Assurance Reporting
Report on QA Reviews
QA reviews at least every 6 years – 3 years for PIEs
must contain the main conclusions of the review
Report on QA Systems
Annual Report on the overall results of the QA system
Disclosure of findings on individual firms not required
European Federation of Accountants - Fédération des Experts Comptables Européens

16. Follow up of QA Reviews
Recommendations of quality reviews shall be followed up by the statutory auditor or audit firm within a reasonable period
If not:
Investigations
Possibility of disciplinary sanctions, including withdrawal of approval
European Federation of Accountants - Fédération des Experts Comptables Européens

17. FEE Report ‘Quality Assurance Arrangements Across Europe’

18. Quality Assurance Arrangements Across Europe
FEE Report studying QA systems and public oversight arrangements of 25 EU Member States plus Bulgaria, Romania, Norway and Switzerland, as of 1 July 2006
Prepared by European experts working in the FEE Subgroup on Quality Assurance
Approved by the FEE governing bodies in December 2006 after 14 months of work
European Federation of Accountants - Fédération des Experts Comptables Européens

19. Key Findings
11 out of 25 EU Member States are yet to create a system of public oversight with ultimate responsibility for quality assurance systems
Significant number of countries are still considering the impact of the Statutory Audit Directive
All countries surveyed except one, have a system of quality assurance covering all audit firms or statutory auditors
Quality assurance reviews should cover either audit firms or statutory auditors
European Federation of Accountants - Fédération des Experts Comptables Européens

20. Monitoring / Monitored peer review
Both systems are compliant with the Directive despite their differences
Monitoring
Need to ensure proper experience and competencies of reviewers
Monitored peer review
Need to ensure independence of reviewers
In a number of countries, involvement of practitioners is inevitable:
Limited human resources (knowledgeable non-practitioners)
Limited financial resources (separate system for PIEs)
European Federation of Accountants - Fédération des Experts Comptables Européens

21. Public Oversight System
FEE encourages public oversight systems with the Directive as their basis
Different models are possible
Wide range of stakeholders involved:
Competent and knowledgeable members in auditing
business, regulators, investors, government officials, minority of professionals etc…
Ultimate responsibility allows for significant delegation to professional
European Federation of Accountants - Fédération des Experts Comptables Européens

22. Cooperation within EU
Mutual recognition is required for application of home-country principle in compliance with the Directive:
Cooperation and coordination within EU is essential, currently within EGAOB
Creation of dedicated legal body to be effective and to build confidence is needed, structured in the public interest and involving all stakeholders
Avoid double quality assurance reviews and inspections
Stimulate agreement of mutual recognition
European Federation of Accountants - Fédération des Experts Comptables Européens

23. Conclusions
Audit regulation should contribute to enhancing audit quality in the public interest, but is not the sole driver
The Statutory Audit Directive – once implemented by all Member States – will provide an important improvement of the framework
European Federation of Accountants - Fédération des Experts Comptables Européens

24. Conclusions
FEE promotes the development of Audit Quality Assurance Systems in EU Member States
FEE supports Public Oversight Bodies at EU Member State level which, while having the ultimate responsibility, allow for significant delegation to the profession
FEE contributes to the ongoing debate on quality assurance, the implementation of the Statutory Audit Directive and the sustained efforts of the Profession in this field
European Federation of Accountants - Fédération des Experts Comptables Européens

25. Visit us at FEE Avenue D’Auderghem 22-28 Tel: +32 2 285 40 85
1040 Brussels Fax:
Belgium
European Federation of Accountants - Fédération des Experts Comptables Européens