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Abstract
With the European Commission making global leadership claims in the field of audit regulation, the content of its 2010 Green Paper on ‘Audit Policy: Lessons from the Crisis’ warrants careful scrutiny. Important issues raised in the Green Paper include regulatory oversight, competition in the audit market, the dangers of having very few firms with the capacity to audit global transnational corporations, professional judgement, innovative audit practices and, last but not least, social responsibility. This article analyses the principal perspectives and assumptions underpinning the construction of the Green Paper. The aims are threefold: to enhance understanding of the contemporary regulatory mindset of the European Commission, contribute to policy debate and inspire future research.
Notes
More than 200 of the replies received from members of the German accounting profession were identical in content (EC, Citation2011, p. 4).
A number of studies have been made of the creation and implementation of the Eighth Directive, they include Van Hulle, Citation1989; Cooper et al., Citation1996; Evans and Honold, Citation2007; Evans and Nobes, Citation1998; Jeppesen and Loft, Citation2011.
A Recommendation is expected to be applied by member states, but it does not have as much weight as a Directive.
By the end of 2010, all member states had reported that they had transposed the Statutory Audit Directive, although there were some matters remaining concerning the national public oversight boards. http://ec.europa.eu/internal_market/auditing/docs/dir/01_09_10_scoreboard_en.pdf
The International Auditing and Assurance Standards Board (IAASB) is positioned within the International Federation of Accountants, which is funded by the accountancy profession, in the form of contributions from both national professional associations and the large, international audit firms.
The majority of members of the PIOB are retired senior regulators (see Humphrey et al., Citation2009, for more details concerning the establishment and work of this Board).
Recommendations are without legal force but are negotiated and voted on according to the appropriate procedure. Recommendations differ from regulations, directives and decisions, in that they are not binding for member states. Though without legal force, they do have a political weight.
The EU Commission runs its activities through 27 departments, known as Directorates-General (DGs), headed up by a Commissioner. Each member state is allowed to choose one Commissioner (but it is not their role to represent that country, but rather, the interests of the EU – although for a critique of EU governance arrangements, see Börzel, Citation2010). Within their respective policy portfolios, Commissioners play a key role in administering the various steps of the legislative process; this includes drafting policy proposals, negotiation, consultation and the development of official policies (Nugent, Citation2001; Schmidt, Citation2004).
The EU has three main institutions, the Council of the European Union, the European Parliament and the European Commission. It is the job of the EU Council to define the priorities and general political direction of the EU, the European Parliament to represent the citizens of the EU (who directly elect it), while the European Commission drafts proposals for new European Laws, manages the implementation of EU policies and the spending of funds. This ‘institutional triangle’ produces the policies and laws that apply throughout the EU, the principle being that the Commission proposes new laws, the Parliament and Council that adopt them, and the Commission and member states then implement them; with the Commission ensuring that the laws are properly taken on board. For more details, see http://europa.eu/about-eu/institutions-bodies/index_en.htm
In determining the new Commissioners, the president of the European Commission, José Manuel Barroso, chose to split up some of the larger portfolios to ensure that one was allocated to each of the 27 member states. Dinan noted that he could well have split internal market and services, one of the largest portfolios, into two jobs, but chose not to do so, handing the whole portfolio to the new (French) Commissioner (p. 111).
A more detailed CV is available here: http://ec.europa.eu/commission_2010-2014/barnier/about/cv/index_en.htm
In 2010 the European Commission issued 10 Green Papers, which is a few more than most other recent years, so in its EU context it is not a very common instrument, given the level of activity generally.
A more recent PCAOB inspection report on audit risk areas affected by the economic crisis (PCAOB, Citation2010) – covering inspection work done between 2007 and 2009 – did highlight a number of audit deficiencies. However, while not providing an explicit statement of assurance as to the overall levels of audit quality observed, it did emphasise that the deficiencies were ‘provided as illustrative examples of the type of deficiencies that inspectors identified when inspecting audits. Identification of these deficiencies should not be construed as suggesting a pervasive issue exists in the particular audit areas’ (p. 2).
Not least because in its 2008 Recommendation on the Limitation of the Civil Liability of Statutory Auditors and Audit Firms, the European Commission explicitly acknowledged that a competitive market for audit services depended critically on suitable access to insurance cover and the limitation of auditor liability – and there remains considerable diversity over the way in which member states have responded to the liability limitation options made possible by the Recommendation (for a detailed analysis of the development of the 2008 Recommendation, see Humphrey et al., Citation2011).