What you need to know about joint audit

Today, the audit market in the majority of Member States suffers from excessive concentration, which is detrimental to quality and innovation in the market. Reducing concentration and ensuring the access of more players within the European audit market is one of the guiding objectives of this reform.  

Mandatory rotation alone will not diversify the audit market, nor will it facilitate the emergence of new market players. Rotation will be beneficial only if it is accompanied by joint audit.

What is a joint audit?

Joint audit, which refers to the audit of an entity by two (or more) auditors to produce a single audit report, is the only mechanism that has a proven track record in maintaining a lower concentration in the audit market among leading listed companies in major economies versus other jurisdictions.

Some features of joint audit include the following:

• joint audit planning and fieldwork allocation among auditors to minimize duplication;
• cross review of the work performed by each auditors;
• joint review of critical issues affecting the entity;
• joint reporting process to the entity’s management, audit committee and  shareholders, and
• submission of a single joint audit opinion, for which both auditors and audit firms are liable. 

How does the EAR promote joint audit?

Companies who opt for a joint audit benefit from a longer rotation period (24 years without the need to tender) compared to single auditors, who can only audit the same PIE for 20 years, and only if a public tender takes place after the initial ten-year period.

In addition to the incentive granted to joint audit, the European Union clearly states its support of this practice in Recital 20 of the Regulation:  

“The appointment of more than one Statutory Auditor or Audit Firm by PIEs would reinforce the professional scepticism and help to increase audit quality. Also, this measure, combined with the presence of smaller Audit Firms in the audit market would facilitate the development of the capacity of such firms, thus broadening the choice of Statutory Auditors and Audit Firms for PIEs. Therefore, the latter should be encouraged and incentivized to appoint more than one Statutory Auditor or Audit Firm to carry out the statutory audit.”

What are the 4 fundamental reasons to consider joint audit?

What is the French experience with joint audit?

In France, where joint audit is common practice, 40% of the audit market is comprised of firms other than the Big 6, versus the UK were alternative firms constitute only 20% of the market. http://www.auditanalytics.com/blog/eu-auditor-market-share-2016/ 

If joint audit were to be established at the EU level, such a situation would create significant cross-border leverage, which would benefit more than one firm. This would facilitate the emergence of a significantly enhanced number of alternate players.

Testimonies