Audit in Europe – A Comparison of Access Requirements into the Audit Profession Across the European Union

ABSTRACT

Within the EU, various measures have been taken to harmonize access to the audit profession. Nevertheless, only minimum access requirements are defined by EU regulation. Our results show considerable remaining differences between the member states. They are the basis for an Access Requirements Index (ARI) which makes it possible to easily assess and compare requirements placed on prospective auditors. In further analyzes, we show that the EU member states form five clusters based on the underlying parameters of the index. Our paper provides a basis for future research on possible consequences of these differences and gives an overview to regulators and the professions in the EU about the status of harmonization of access requirements.

Keywords:

• Audit Profession
• Entry Requirements
• Professional Licensing
• European Audit Regulation

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Margerison and Moizer (1996) and FEE (2002) build on 12 (21) EU member states, respectively. FEE, the Fédération des Experts Comptables Européens (now: Accountancy Europe) has since published fact sheets summarizing some key facts on the structure and organization of the European accounting profession (FEE, 2012a, 2012b).

2 This was previously discussed in the Green Paper 2010 (European Commission, 2010). It should enable previously registered statutory auditors to perform audits in every member state without requiring further exams but several hurdles, such as an EU-wide registration system and full convergence of entry requirements, seem insurmountable. Differences in local GAAP and national legislation still call for an aptitude test for auditors trained in another member state (e.g. Van Linden & Hardies, 2018).

3 CCP should retain national qualifications and country-specific exam content (e.g., national tax and commercial laws) but standardize common content such as, but not limited to, IFRS, ISA and the Code of Ethics (e.g. CCP, 2017; Smith, 2008).

4 For instance, Bohumil Kral is on record saying that ‘ … the Czech Republic is ‘too small a playground’ to achieve reasonable costs and a sufficient number of experts’ (Wilson et al., 2009, p. 158) to credibly develop stand-alone state-of-the-art systems of professional accounting education.

5 We refer the reader to Appendix 7 for in-depth information.

6 With the exception of ICAS, where applicants need to have achieved a ‘good’ grade (ICAS, 2017).

7 Candidates in Romania needed to proof at least four years of working experience in the area of financial accounting and another three years in auditing until 2017. The professional law was recently changed such that now only three years of work experience in auditing are required.

8 Candidates in Ireland and the U.K. are able to start their exam preparation and structured courses as ‘school leavers’ directly after reaching the university entrance level degree, whereby the necessary professional experience is seven years each.

9 These are Bulgaria, Finland, Germany, Greece, Hungary, Portugal, the Slovak Republic, Slovenia, Spain and Sweden.

10 For similar discussions in the U.S., cf. Barrios (2022), Boone et al. (2006), Carpenter and Stephenson (2006), Gramling and Rosman (2009).

11 Oral examinations can include a test of technical knowledge, the defense of a thesis, or solving an audit case study. We do not find regional preferences, as oral exams are held in all regions of the EU.

12 On average, candidates have to pass eight partial stage exams to succeed in the professional examination whereas the preparation of a thesis and its oral defence have each been counted as one partial stage exam. In the case of Cyprus and Malta, the two local exams and the exams to be passed to become an ACCA were also counted as partial stage exams.

13 We provide detailed examples in Appendix 6.

14 In Germany, candidates have three attempts to pass the examination. Until 2020, candidates in Denmark could have retaken the examination only once, with the second attempt after a break of at least five years. An additional retry required a special permission by the professional body. The structure of the professional exam is changed from 2020 by reducing the number of partial exams and extending the period within all tests must be passed. (Institute of State Authorized Public Accountants, 2020).

15 Having said that, there is also the argument that prices would increase due to greater demand for an improved quality of service provided by licensed professionals (Cascino et al., 2021; Shapiro, 1986).

16 For a discussion on the U.S. state-level context of professional lobbying, cf. Young, 1991.

17 Every auditor who wants to perform statutory audits has to successfully pass the peer review every three years which goes beyond the requirements defined in Directive 2006.

18 A striking example is the case of Saudi Arabia. Following the rapid expansion of the Saudi economy in the 1970s, the demand for audits also increased drastically. As a result, audit licenses were granted to persons with university degrees in business and management and even persons without degrees but some experience in accounting or auditing. Following the establishment of the Saudi Organization for Certified Public Accountants (SOCPA), this extremely lax policy was later somewhat reversed to increase audit quality. However, existing license holders were grandfathered into the new regime (Haniffa & Hudaib, 2007).

19 Since the data collection took place before the U.K. left the EU, we continue to include the U.K. in our analyses.

20 Until recently, candidates in Germany had to complete four modules consisting of a total of seven written tests of approximately five hours each within a three-week testing period, followed by an oral examination on current accounting and business issues held in front of a panel of university professors and senior representatives from the profession (Vieten, 1995). Anecdotal evidence attributes historically high failure rates of about 80% to this large workload. If individual modules of the exam were not passed, they could be repeated once. In the case of failure, the complete exam had to be repeated, whereby a maximum of three attempts could be carried out. From 2020 onwards, it is possible to distribute the four modules over a maximum period of six years. Within this period, candidates can attempt each module three times. If not all modules have been passed within the six year timespan or if the candidate fails a module for the third time, the full exam process can be repeated once (Wirtschaftsprüferkammer, 2019).

21 Gul et al. (2013) find no significant association of having an accounting degree with audit quality for a sample of Chinese listed companies, whereas Van Linden and Hardies (2018) and Chu et al. (2022) find positive effects of higher education overall or accounting degrees. The latter employ samples of listed companies in 20 European countries and the U.K., respectively.

22 National regulators as well as professions feared that the European Audit Passport might have resulted in ‘exam tourism’ to locations with the lowest entry requirements and opposed it successfully (e.g., Humphrey et al., 2011).

23 A change in entry regulation being known in advance would likely produce rent-seeking candidates who attempt the examination prior to the rule change and try to benefit from ‘grandfathering’ their license. Evidence for this also can be drawn from the US ‘150-hour rule’ (Carpenter & Stephenson, 2006).

24 For instance, the Institut der Wirtschaftsprüfer sent a letter to the responsible ministry which points out the retirement of a large proportion of statutory auditors over the next five years as the premier reason to ‘modernize‘ the audit examination (Source: https://www.idw.de/blob/102114/7eb4c13d31cf0f50464724f242037649/down-bmwi-reform-wp-examen-data.pdf). For more details on German auditing’s demographic problems, cf. Bravidor et al. (2016).

25 Information received from a Réviseurs d’Entreprises on 11 August 2017.

26 Audit Act (Croatia), Art. 7, Sec. 5.

27 Act LXXV of 2007 (Hungary), Sec. 91.

28 A Master’s in Audit degree from the University of Luxembourg that includes the same subjects is a substitute (Grand-ducal Regulation, Sec. B, C and D).

29 The full syllabus is provided by eight universities (i.e., the Free University of Amsterdam, the University of Amsterdam, Nyenrode Business University, the University of Groningen, the University of Maastricht, Erasmus University Rotterdam, the University of Tilburg and the University of the Netherlands Antilles at Curacao).

30 Law 162/2017 (Romania), Art. 7, Sec. 1b).

31 Law 162/2017 (Romania), Art. 11, Sec. 6b).

32 Act of 11 November 2015 (Slovak Republic), Art. 3 Sec. 1e).

33 Act of 11 November 2015 (Slovak Republic), Art. 3 Sec. 7d).

34 Law 22/2015 (Spain), Ch. 2, Art. 9, Sec. 2b) and c): The theoretical education should for example cover subjects such as the regulatory framework for financial reporting, financial analysis, auditing and rules of access to the profession.

35 Law 22/2015 (Spain), Ch. 2, Art. 9, Sec. 2b).

36 These topics are general accounting theory and accounting principles, legal requirements and standards for the storage of financial statements and consolidated accounts, IFRS and financial analysis; cf. Auditor’s Inspection Regulation (RIFS 2018: 1) (Sweden), Par. 2, 3.

37 The term written exam includes case studies, final exams and theses.

38 Only 2,400 individuals are registered as statutory auditors in Ireland, which corresponds to 0.05% of the total population (Companies Registration Office, 2019).

39 The ratio to the total population in U.K. refers to the registered auditors and not the number of members of the professional body as a whole which is 17,600 for ICAEW, 1,900 for ICAI, 800 for ICAS and 2,900 for ACCA. The number of auditors which are member of ICAEW represents 0.03% in relation to the whole population in the U.K. where the member of the other professional bodies in the U.K. each represent 0.00% of the whole population.

40 The number of statutory auditors in Italy was available as of 31 October 2015.