Mr. Philip Kelly:

A couple of big questions arose at the end of the Irish Presidency with regard to the auditing directive. These concerned the rotation period, as to when the auditor would be required to be changed. There had been significant divergence between member states and between member states and the European Parliament on the length of time of the rotation period.

Some in the Parliament were suggesting it should be a couple decades, while others pushed for a much shorter period. As the Irish Presidency left it, an initial trigger point for rotation would be approximately ten years. We suggested various possibilities for extensions, such as five years or potentially even an additional two or three years on top of that depending on whether, after the ten-year period, the company had gone to market and it was valid, through a normal procurement process, to reappoint the existing auditor. That would get a company from ten to 15 years. If the company was mid-merger or something like that, there might be a business case for retaining the auditor for an extra year or two. Variants of the ten years plus five, or ten years plus five plus two or three, are floating around under the Lithuanian Presidency.

The other major issue related to the limit that should be imposed on audit firms in regard to audit and non-audit related income from the audit client. The suggested approach was, on the one hand, to develop a so-called blacklist of activities which an auditor cannot provide and, on the other, to consider designating certain audit ancillary activities the audit company could do for the client while limiting the income to be earned in this way.

The other major question related to how the auditing profession might be overseen at European level, whether by a single institution or a network of national regulators. There seemed to be a preference for the latter rather than giving this as a function to a pre-existing EU body. Those are the three questions we have left with the Lithuanian Presidency in regard to the audit directive.