In the last decade¸ public confidence in the auditing profession was dented by corporate scandals such as Enron in the US¸ Dutch retailer Ahold¸ Parmalat in Italy and Societe Generale in France (to name a few)¸ and lately the Madoff scandal. In response to these scandals and as part of the preparations for a broader action plan on corporate governance the EU Commission has conducted a number of studies. One such study has concluded four key areas.
These covered the international market for statutory audits of listed and very large companies as this is highly concentrated and dominated by the Big-4 networks. Locally¸ we have been seeing a pattern of regular assignments issued by the Ministry of Finance¸ which uses the services of the Big-4 audit firms in areas of tax reforms¸ investigations of fuel / electricity tariffs by Enemalta¸ studies of performance on specific loss making jobs at the now-closed shipyards and sundry transport studies. This has placed the services of the dominant Big-4 firms under the spotlight as consultants to the state.
Back to the international scene. As a result of pressures due to accounting and corporate governance scandals¸ the EU Commission implemented a new audit rule called the Eight Directive. This includes¸ inter alia¸ mandatory audit committees at listed companies and the need for compulsory rotation of audit firms on a seven-year term. This is a heavy piece of legislation concerning the regulation of auditors. As members of the EU¸ once this directive is implemented then rotation of auditors of quoted companies will take place. In serving the public interest¸ the International Auditing and Assurance Standards Board (IAASB) went into overdrive to set high-quality international auditing and assurance standards.
The IAASB recognises that standards need to be understandable¸ clear¸ and capable of consistent application. These aspects of clarity serve to enhance the quality and uniformity of practice worldwide. In 2004¸ the IAASB began a comprehensive programme to enhance the clarity of its International Standards on Auditing (ISAs). This programme involved the application of new drafting conventions to all ISAs¸ either as part of a substantive revision or through a limited redrafting¸ to reflect the new conventions and matters of clarity generally.
Recently¸ the Clarity Project reached completion when the Public Interest Oversight Board approved the due