Regulation (EU) NO 537/2014 and its impact on the quality of the statutory audit: implementation of its key points in Germany

Abstract

The objective of this paper is to provide an overview of the selected provisions of the Regulation (EU) No 537/2014, more specifically about the extended audit report, the additional report to audit committee and the far-reaching prohibition of NAS provided by auditors. The criteria for evaluation of these provisions are the final adoption of the reform by the German legislator and their impact on the quality of audit. On the 17th of March 2016 the German Bundestag adopted the AReG and on the 3rd of December 2015, the APAReG. These acts provided the transition of the directive into national law and application of the derogations from the regulation. It caused much debate, as the German legislator had to take a decision whether to exercise certain derogations, extend particular provisions applicable explicitly for PIEs and make the applicable resolutions more rigorous. Applying the quantitative research based on the survey, findings on the deficiencies of the German audit regulation before the reform were collected. Furthermore, the perception of audit market participants on the matters influenced by the regulation, such as the informative function of audit, the auditor’s independency and finally the audit quality were investigated. The last approached concept was the overall impact of the regulation on the audit process in public interest entities. The findings showed that the sentiments of the practitioners are often divergent with the viewpoints of the European regulator. The views of audit market participants seem to be sceptical about the European legislator increasing the value and quality of audit by the means of this reform.