“Audit reform is a good thing for bringing confidence back to the corporate world”
Introduction:The independent audit profession, with its statutory mandate and disciplined body of regulations, has been playing an important role in building public confidence to the capital market operations over the decades.But, for the recent banking crisis and corporate scandals, different stakeholders group urge to re-assess the existing regulatory framework of audit to revive the investors’ confidence to the corporate affairs. The current audit market of large corporate houses is largely dominated by the Big-4 accounting firms: KPMG, PwC, Deloitte and Ernst & Young. This high level of concentration with other risksalso raises questions about the competitive structure of the audit market. All these issues ultimately guide the current audit reform agenda at the government and the regulatory level to ensure audit quality.
Historical Development of the Audit Reform in EU: The first important initiative in the harmonisation of accounting and auditing in Europe was the Fourth Directive in 1978(78/660/EEC) which required that companies must have to audit their annual accounts by one or more persons authorized by national law to audit accounts. Subsequently, the Seventh Directive (83/349/EEC) and the Eighth Directive (84/253/EEC)came to enrich the field.
During 1990s, several factors led auditing again to the attention of the European Commission. In 1996, the European Commission published a Green Paper on ‘The Role, the Position and the Liability of the Statutory Auditor within the European Union’ and organized a conference.
The conference proceedings included a proposal for an EU Committee on Auditing. On the basis of the committee’s work, the commission produced a Recommendation on ‘Quality Assurance for the Statutory Auditor in the EU’ in November 2000.The Enron scandal came to light in 2001 with questions over auditor independence, competence and ethical...