Businesses and associations from across the EU and beyond have highlighted the current strengths of EU corporate reporting, and several areas for improvement, according to the European Commission’s (EC) summary and analysis of responses to its public consultation. 

Respondents identified corporate governance as the weakest area of the corporate reporting ecosystem in terms of overall effectiveness and efficiency (34% low and 35% medium on effectiveness). Corporate governance and reporting, and related supervision, are the areas that need improving most, according to many respondents. However, preparers of corporate reporting considered the corporate governance as highly or very highly effective (70%).

About 82% of respondents saw a need to improve some or all of the areas covered by the public consultation. Some 83% of respondents rather or strongly supported a focus on corporate governance. For the statutory audit and supervision of PIE auditors and audit firms, around two-thirds of respondents were neutral or rather agreed that these pillars needed improvement.

The EU’s framework on statutory audit was considered effective overall but lacking efficiency and coherence. The supervision of statutory auditors and audit firms by public authorities was considered somewhat effective, efficient and coherent. This includes Member States’ systems of investigations and sanctions. 

Around two-thirds were either neutral about PIE audit supervision or believed it required improvement.

Respondents want to see a strengthening of corporate governance rules, clarifying and harmonising the responsibilities of boards of directors, ensuring effective risk management and internal controls, and ensuring proper expertise of board members.

Around 80% of respondents considered the effectiveness, efficiency and coherence of the tasks of audit committees as either medium, high or very high. However, views on reforming the requirements for the establishment and composition of audit committees are diverging.

Respondents were favourable of increased information exchanges and cooperation between competent authorities, with clearer independence rules and transparency.

More than 82% of respondents agreed that statutory audits contribute to the quality and reliability of PIEs’ corporate reporting. The work of auditors was also reliable, they considered. Respondents were satisfied with the role of PIE statutory auditors.

Many highlighted the lack of harmonisation within the rules for statutory audit across the EU. Respondents called for harmonisation and simplification by removing and/or reducing Member State options.

Regarding cross-border statutory audits, many were in favour of limiting Member State options in order to ensure consistency across the EU and incentivise cross-border statutory audits. They voiced strong support for increased consistency of supervision of cross-border networks of audit firms.

Respondents had differing views on measures proposed to improve audit quality. Views were particularly split on the statement in the consultation that joint audits contribute to the quality of audit (about 34% strongly disagreed and 31% strongly agreed).

Just under half of the respondents considered that limiting non-audit services provision would be effective, while views on efficiency were split. 

The majority of respondents agreed that specific indicators were useful to measure the quality of corporate reporting, statutory audits and the effectiveness of supervision. However, they were generally sceptical about the ability to develop such indicators, particularly for corporate reporting. 

While various oversight bodies have developed audit quality indicators (AQIs), there are no known, generally accepted quality indicators for corporate reporting and oversight. Respondents underlined that such indicators risked being subjective and arbitrary.

Susanna Di Feliciantonio, ICAEW Head of European Policy, noted: “Many of the points drawn out in the Commission feedback statement correspond with the comments we made in our consultation response earlier in the year, particularly the need to look for improvements across all three pillars – corporate reporting, statutory audit and supervision. Some of these concerns relate to issues of implementation and don’t necessarily require a significant rewrite of existing laws.” She added: “It will be interesting to see how the Commission reflects the input from stakeholders when it moves ahead with legislative proposals, probably early in 2023.” 

Respondents came from a wide variety of territories and backgrounds, within and outside the EU. As well as accounting professionals and auditors, respondents came from accountancy-adjacent roles, various business interests and a few authorities.