Audit committee: new challenges

With the entry into force on 17 June 2016 of Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public-interest entities and the forthcoming transposition of Directive 2014/56/EU into Luxembourg law (draft law No 6969), the audit committees will play a more active role and a greater number of public-interest entities will have to set up such a committee. The fact of not issuing securities admitted to trading on a regulated market will no longer be a justification for exemption.

First, bear in mind that, as regards the composition of the audit committee, the majority of its members must be independent from the audited entity, competent in the entity’s area of activity and at least one member must be competent in accounting and/or audit.

As far as the tasks of the audit committee are concerned, according to the current law, it must ensure the follow-up of the financial reporting process, the efficiency of the internal control systems, internal audit and, where applicable, risk management, the statutory audits of accounts and the independence of the réviseur d’entreprises agréé (approved statutory auditor) or cabinet de révision agréé (approved audit firm).

The independence being a pillar of these new European texts, every year, the réviseurs d’entreprises agréés and cabinets de révision agréés will have to confirm in writing their independence to the audit committee and discuss the risks to their independence as well as the safeguards applied to mitigate these risks. It is valid, in particular, for service provisions to the audited entity other than audit services.

In addition, the audit committee will have to submit its recommendation to the administrative or supervisory body of the audited entity in the framework of the process of selection of the réviseur d’entreprises agréé or cabinet de révision agréé. Except when renewing the statutory audit of accounts, this recommendation will have to be reasoned and to include at least two possible choices among the candidates and it will have to indicate the duly reasoned preference of the audit committee for one of these two.

In addition to these tasks, the audit committee will hence have to communicate on the results of the statutory audits of accounts to the administrative or supervisory body and to declare the actions it took in this process in order to ensure the integrity of the financial information. Moreover, it will have to assess the quality of the supplementary report issued for it by the réviseur d’entreprises agréé. The content of this report is laid down in Article 11 of Regulation (EU) No 537/2014.

In other words, it will have to further accompany and control the réviseur d’entreprises agréé and cabinet de révision agréé. No approximation will be permitted as the CSSF will have to assess the work of these audit committees and report it to the European Commission. The ability to sanction the less diligent audit committees was entrusted to the regulator.

For further information, please contact the department Public Oversight of the Audit Profession (supaudit@cssf.lu).