1. Sárvár, 10 June 2010 Hilde Blomme FEE Director of Practice Regulation
10th Visegrad 4 Countries Meeting Auditing Update and Other Related Matters
Sárvár, 10 June 2010
Hilde Blomme
FEE Director of Practice Regulation

2. Agenda Current position within the European Commission
ISA Implementation challenges
Assurance services other than Audit
eXtensible Business Reporting Language (XBRL)
Ethics and Independence
Thoughts on the implications for our profession

3. Recent messages from the European Commission re Auditing, Financial Reporting etc.

4. Recent Messages from the European Commission
Want to reduce burden on SMEs
Real difficulty is “how”
Recognition that SMEs are fundamentally important to the economy so need to grow and develop the sector (97% of companies in Europe)
Need to reflect on what changes, if any, are needed

5. Recent Messages from the European Commission
Financial Reporting
Micro entities
Member State option
Not about eliminating the accounting rules
Parliament voted for revised proposals – would like to progress during Spanish Presidency
Other SMEs
Overhaul of 4th and 7th Directives
IFRS for SMEs
“Evolution” not “Revolution”

6. Recent Messages from the European Commission
Financial Reporting (cont)
Listed SMEs
Should EC provide different rules?
Should they have full IFRS or something else?
What can be done in areas such as Prospectuses and other reports to shareholders?

7. Recent Messages from the European Commission
Auditing
Green paper – to be issued before end of September 2010
Structure of the market (concentration and choice)
ISA adoption and auditor communication
Role and governance of the auditors
Audit for SMEs (do we need to simplify audit for SMEs and SMPs?)
International co-operation
Supervision and inspection of audit firms across Europe
Ethical matters like conflicts of interest
etc., etc.

8. Implementation of ISAs
Challenges for the Firms/Profession and
Applicability of ISAs to Audits of SMEs

9. Countries which have decided to implement Clarified ISAs (May 2010)
Status # %
Belgium (2012/2014), Bulgaria, Cyprus, Czech Republic, Finland, Hungary, Ireland, Latvia, Lithuania, Malta, Netherlands, Norway, Romania, Slovak Republic, Slovenia, Sweden, UK
Yes 17 58
Austria, France, Luxembourg, Poland, Portugal, Switzerland
No, awaiting EC 6 21
Denmark, Estonia, Germany, Greece, Italy, Spain
Unclear
Total 29
100

10. ISA Implementation Challenges for the Firms/Profession
Need for considerable human and financial investment in first years:
Translation of ISAs into local language
New or updated audit approach policy manuals and methodology
New or updated audit software
New or updated training material and training efforts
Coordination with and buy-in from stakeholders (preparers, regulators, inspection bodies, software providers, training consortia, professional media, etc.)
Involvement of professional bodies (essential)

11. Bigger Audit Firms
FoF has implemented clarified ISAs by IAASB effective date (2010 year-ends)
Were already largely ISA compliant
Can look after themselves for implementation
Issues:
Globally consistent approach
Local pluses and potential minuses (local laws and regulations)
Different approach for different industries and size of entities

12. Smaller Audit Firms
Smaller firms need more help as it is a greater challenge for them
Not all countries are starting from the same position re standards currently being used. Much to do in many countries
Issues:
Considerable time required to implement (start now)
Need help from professional accountancy bodies (FEE Member Bodies)
FEE Member Bodies seek help from IAASB, FEE, etc.
IAASB to produce implementation or support material (video modules and slides for certain ISAs) – will it focus on SMEs

13. FEE ISA Implementation Task Force
Set up to consider work required on implementation of clarified ISAs in 2010 and beyond
Includes representatives of IFAC SMP Committee, EGIAN, World Bank, etc.
Established current ISA implementation status and approaches across Europe (survey)
Based on the results of the survey, still to determine what further work to be undertaken
on implementation framework
on communications
Focusing on sharing information to help FEE Member Bodies and SMPs wherever possible
Considering involvement with audit software providers

14. Applicability of ISAs for Audits of SMEs (1)
Concerns of SMPs:
Cost of audit will increase using clarified ISAs
Concerns about scope to apply professional judgement to determine audit approach in line with nature, size, risk and complexity of audited entity
Concerns about excessive audit documentation requirements
Expectations of public oversight bodies (POBs) upon quality assurance reviews or inspections are unclear

15. Applicability of ISAs for Audits of SMEs (2)
Response:
Need to re-engineer the audit to benefit from work on internal control environment
Open debate of FEE with IAASB, POBs, EGAOB and European Commission on concerns and possible resolution
FEE Policy Statement on ISAs produced
IAASB Staff Q&A on proportionality of ISAs in SME context issued
IAASB implementation modules rolled out
Update of APB Practice Note 26 on Guidance on Smaller Entity Audit Documentation completed
IFAC SMP Committee Guide on Using ISAs in the audit of SMEs being reviewed – due end of 2010

16. Assurance Services
Other than Audit

17. Impact of Use of Audit Exemption Thresholds

18. Use of Audit Exemptions for Limited Liability Companies in the EU, Norway and Switzerland
Countries %
Maximum or near maximum thresholds:
Balance sheet total: €
Net turnover: €
(Austria, Belgium, Germany, Ireland, Italy, Luxembourg, the Netherlands, Romania, Slovenia, Switzerland1, United Kingdom) 11 38
Balance sheet total: between € and
Net turnover: between € and
(Greece, Poland and Spain) 3 10
Balance sheet total: between € and
Net turnover: between € and
(Czech Republic, France (except SA), Lithuania and Portugal)
3 (1)
1 Introduction or increase in 2007, 2008 or 2009

19. Use of Audit Exemptions for Limited Liability Companies in the EU, Norway and Switzerland
Countries %
Balance sheet total: between € and
Net turnover: between € and
(Estonia1,4 and Slovak Republic1) 2 8
Balance sheet total: between € and
Net turnover: between and
(Bulgaria, Denmark1,4, Finland2, Hungary1 and Latvia1) 5 17
Balance sheet total/ net turnover: €0 (Cyprus3, France (SA), Norway, Malta3, Sweden4) 29
100
1 Introduction or increase in 2007, 2008 or 2009
2 Decrease in 2007
3 For tax purpose
4 Increase in 2010 (final or expected)

20. Impact of use of Audit Exemption Thresholds
Trend to increase audit exemption thresholds in EU
97% of all EU audits are SME audits
The market for statutory audit is shrinking (95% are below EU audit threshold)
Substitution by voluntary audits is not evident
However, the economy continues to need comfort that the financial performance of companies is fairly presented

21. Reaction to more companies not requiring an audit

22. Assurance services other than audit
Issues:
“An audit is an audit” must be preserved (brand protection)
Increase in audit exemption thresholds
More regulatory pressure
Clarified ISA audit more demanding and more costly
Desire by profession to provide something to fill the hole
………
Responses:
Development of / changes to assurance services other than audit
Addressed on national, FEE & IAASB level
Divergent views in different countries
Desire to arrive at positive audit opinion with less work – not possible without confusion or brand damage
FEE survey July 2009

23. Assurance initiatives other than audit in some countries
Consideration of or proposals for non audit assurance service for (certain) smaller entities in Denmark, Finland and Malta
Mandatory statutory review for ‘‘SMEs’’ in Estonia and Switzerland
Presentation or compilation engagements with certain assurance in France and Germany
Accountant (not auditor) report for small charities & pension schemes in Ireland
Continuous integrated reasonable assurance by Collegio Sindacale in Italy
Limited assurance based on review plus substantive procedures in UK (ICAEW)

24. Assurance services other than audit: conclusions
Fragmentation a major issue in Europe and beyond if no global standard
Call by FEE for Member States and National Institutes to exercise constraint
IAASB encouraged to speed up work on review engagements- exposure draft late 2010

25. eXtensible Business Reporting Language (XBRL)

26. eXtensible Business Reporting Language (XBRL)
Allowing or mandating filing of audited FS and / or tax filings under XBRL becomes more and more common
IAASB project proposal to develop
Pronouncement on expected auditor work efforts and implications on his reporting if XBRL data filing with FS or if only XBRL data filed
FEE XBRL Task Force has prepared a FEE Policy Statement to educate the accountancy profession and third parties on the use of XBRL
Explosion in available literature shows increased activity around world
Profession needs to engage now – increased demand for SMP services

27. Ethics & Independence

28. Ethics & Independence Principles: covered in Articles 21 & 22 of SAD
EC recommendation on independence (2002) still applicable
Revised IESBA Code of Ethics (July 2009), effective 1 January 2011, significantly strengthens the independence requirements for PIE audits, non-PIE audits and other assurance services
Changes re key audit partner, partner rotation, internal audit services, tax services, relative size of fees, contingent fees
EU MS currently have wide variety of independence principles and/or requirements based on (old) IFAC code – need for EC Recommendation

29. Thoughts on the implications of changes for the Auditing Profession
Messages from FEE SME/SMP Conference
Questions that need to be answered if we are to prosper in the future

30. Some messages from the FEE SMP/SME Conference in Venice
There will be more regulation but there is a desire to get it right first time
Profession is changing and our services to SMEs will change
Clients want to pay for expertise and experience
Audit is a diminishing market but other services will stand in its place

31. Messages from clients (raised at the Venice conference)
Improve your knowledge of the business
More focus on the business and less on figures
SMEs want support from SMPs to help them develop their businesses
Wide range of services to be provided not just audit (but will regulators allow it?)
Prepared to pay more for added value services but not necessarily for audit

32. Implications for the Profession
Will there be convergence of Standards globally – Auditing, Ethical, Financial Reporting? If not, what will be the implications?
How will the Regulators finally react to the Financial Crisis? More regulation or better regulation?
What will the emerging markets of China, India, Russia and Brazil adopt as their Standards and how will this impact on us? Some already moving to IFRS and ISAs
What will be the impact of XBRL be on financial reporting and auditing?
Are we well placed to lead on Sustainability?

33. Implications for the Profession
In Europe :
Will the profession across parts of Europe lose credibility if ISAs are not adopted by the EC
Will we have a two track profession – auditors and non-auditors and/or large firms and small firms working with different auditing standards ?
How will we train our people (and, as a consequence, those who go into industry and commerce)?
How can we attract and retain the best people?
If, globally, we don’t have an audit for the vast majority of companies what will the market want in its place (if anything) and are we equipped to provide it?

34. There is a big opportunity
(if we seize it)
as well as a big challenge

35. Discussion and Questions

36. Standing for trust and integrity
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