Overview Of Isa Adoption In The European Union

This article is based on a recent FEE publication “Overview of the ISA adoption in the EU” (FEE, April 2015). The study aims to provide an overview of the current adoption status of International Standards on Auditing (ISAs) in the European Union (EU)[1]. The study demonstrates to what extent the 28 European Union Member States have chosen to apply ISAs for all audits. Based on information gathered from FEE Member Bodies, FEE noted that significantly more countries voluntarily adopted ISAs than when we last asked in 2013. Currently, only three Member States have not yet adopted these global standards.

Background

Based on the Directive 2014/56/EU amending Directive 2006/43/EC on statutory audits (2006 SAD) and the Regulation (EU) No 537/2014, “EU Member States shall require statutory auditors and audit firms to carry out statutory audits in compliance with international auditing standards adopted by the Commission”[2]. EU law also empowers the European Commission (EC) to adopt ISAs at a European level, but a timetable for this has not yet been set. In the meantime, the SAD provides that Member States may apply national auditing standards.

Notwithstanding that many EU Member States have voluntarily already adopted the ISAs at a national level, either without modification or with a few national additions, formal adoption by the EC is still desirable for a number of reasons, such as:

  • Some EU Member States, including large ones, have not yet adopted ISAs voluntarily and are said to wait for EC adoption (France, Germany and Portugal);
  • Without an EU adoption mechanism, new and revised ISAs may be adopted at different times or certain standards may not be adopted at all in some jurisdictions, ultimately resulting in an increased lack of harmonisation throughout the EU; and
  • EU-wide coordination and collaboration would enable the establishment of more effective mechanisms to guarantee the quality and acceptability of ISA translations.
Illustration 1: Status of adoption of clarified ISAs for all audits in the EU (April 2015)

Illustration 1: Status of adoption of clarified ISAs for all audits in the EU (April 2015)

Illustration 2: Overview of add-ons to clarified ISAs for all audits in the EU (April 2015)

Illustration 2: Overview of add-ons to clarified ISAs for all audits in the EU (April 2015)

Status of adoption of clarified ISAs for all audits in the EU (April 2015)

Countries

Status

#

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Romania, Slovak Republic, Slovenia, Spain, Sweden, UK

Adopted unamended ISA or ISA+

25

France, Germany, Portugal

Awaiting EC adoption

3

Total  

28

Main Observations

The clarified ISAs are currently fully adopted in 25 out of 28 EU Member States whereby FEE defined adoption as the use of ISAs as issued by the IAASB or with possible add-ons. Once carve-outs that are reducing the obligation of auditors are implemented, the ISAs are not considered to be adopted. Malta is one of those countries that have no add-ons and no carve-outs to the clarified ISAs.

Some countries which have not adopted the ISAs use translated ISAs with amendments, including additions and deletions, as a basis for their national auditing standards. This is referred to as the transposition of ISAs, as is the case in Germany and France.

Most of the national add-ons are added to comply with national legal or regulatory requirements or company/commercial code requirements. The add-ons to clarified ISAs are mostly connected to:

  • Additional auditor reporting requirements;
  • Scope of the audit; or
  • Supplementary guidance.

As mentioned above, countries referred to as having fully adopted the ISAs have done so without putting through any carve-outs. However, in specific cases where the carve-outs are not reducing the obligations of auditors, in order to comply with national legislation, are still considering as having adopted the ISAs as issued by the IAASB. This is the case in the UK and Ireland, where the requirements of ISA 720 connected to ‘Other information’ received after the date of the auditor report are not applicable, because such cases cannot occur in these jurisdictions. Some deletions connected to public sector specific paragraphs and services, which are outside of the scope of Spanish law, were put through in Spain. The majority of all 28 EU Member States have adopted clarified ISQC 1. Some did not adopt the standard as they have national standards in place which are substantially compliant with ISQC 1, such as Germany and the Netherlands.

  1. Reference is made to Article 26 of the Directive and Article 9 of the Regulation.
  2. The information included in the FEE study has been compiled based on information requested and gathered from FEE Member Bodies.
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