The EU audit legislation introduces new responsibilities for audit committees. While many of the rules are already widely in use and considered best practice, there are a number of accountabilities that will substantially impact those overseeing their company’s audit. Read this fact sheet to understand how the changes will affect the audit tender process, approval of non-audit services and membership of the audit committee itself.
The new EU legislation introduces additional requirements specific to the role and responsibilities of audit committees; as well as changes to auditor oversight. In reality, most of the requirements for audit committees set out in the legislation are already being performed today and represent ‘best practice’. Therefore the main shift is that these requirements are now being enshrined in law.
The changes specify that each EU-based public interest entity must have an audit committee. The committee may be either a standalone forum or a committee of the administrative body or supervisory body of the audited entity. However, the functions assigned to the audit committee may be performed by the administrative or supervisory body as a whole.
Audit committees are responsible for submitting a recommendation to the administrative or supervisory body of the audited entity for the appointment of the auditor. The recommendation should include at least two possible choices for the audit engagement and a justified preference for one of them.
Tender documents should contain transparent and non-discriminatory selection criteria to be used for the evaluation of proposals. The audited entity is required to prepare a report on the conclusions of the selection procedure, which is validated by the audit committee, to demonstrate that the selection procedure was conducted in a fair manner.
This fact sheet applies to the EU baseline rules. The final regulatory environment will be impacted by how each EU Member State interprets the legislation and any derogations they choose to implement.