REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN SYSTEMIC RISK BOARD AND THE EUROPEAN PARLIAMENT on monitoring developments in the EU market for providing statutory audit services to public-interest entities pursuant to Article 27 of Regulation (EU) 537/2014
Date: 2017-09-07
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: audit, bank, capital market, data collection, financial control, insurance company, management audit, market supervision, report, services of general interest

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 7.9.2017  COM(2017) 464 final   REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN SYSTEMIC RISK BOARD AND THE EUROPEAN PARLIAMENT on monitoring developments in the EU market for providing statutory audit services to public-interest entities pursuant to Article 27 of Regulation (EU) 537/2014  
 
 
1. 

INTRODUCTION 

The reform of EU audit legislation came into being to boost confidence in the integrity of 
financial  statements.  The  legislation  consists  of  an  audit  Directive1  and  an  audit 
Regulation2. The Directive applies to all statutory audits; the Regulation contains specific 
requirements for the statutory audits of public-interest entities (PIEs)3.  

The Regulation aims both at enhancing audit quality and at promoting competition in the 
audit  market.  Article  27  serves  as  a  means  of  effectively  and  regularly  monitoring 
compliance  with  these  aims.  Article  27  deals  with  the  monitoring  of  the  following 
aspects of the EU market for the provision of statutory audit services4 to PIEs: (a) market 
concentration levels; (b) risks to audit quality and measures to mitigate them; and (c) the 
performance of audit committees. 

Under the Regulation each national authority responsible for audit oversight5 (NCA) and 
the  European  Competition  Network  (ECN6)  must  draw  up  a  report  on  developments  in 
their market for the provision of statutory audit services to PIEs. The Commission then 
uses  these  reports  to  draw  up  a  joint  report  covering  the  whole  EU.  The  joint  report  is 
submitted to the Council, the European Central Bank, the European Systemic Risk Board 
and,  where  appropriate,  to  the  European  Parliament.  This  report  is  the  first  such  joint 
report and will serve as a baseline for future reports. 

The  analysis  in  this  report  is  based  on  the  data  that  the  Commission  received  from  the 
NCAs  and  the  ECN.  It  refers  mostly  to  2015  and  was  collected  in  2016  based  on  a 
selection  of  market 
the  preparatory, 
consolidation and validation work in close cooperation with the Committee of European 
Auditing Oversight Bodies (CEAOB)7. 

indicators.  The  Commission  carried  out 

The NCAs used different sources of information for their national reports. Sources such 
as  the  national  public  register  and  the  transparency  reports  are  public;  others,  such  as 
surveys and questionnaires, are not. Unless otherwise specified, national reports are the 
main source of data in this report.  

A number of limitations were encountered when consolidating national data at EU level. 
As  the  new  EU  audit  rules  became  applicable  only  on  17 June 2016,  the  data  in  the 
national  reports  was  gathered  under  the  previous  EU  legal  framework  (Directive 

1   Directive  2006/43/EC  of  the  European  Parliament  and  of  the  Council  of  17  May  2006  on  statutory 
audits  of  annual  accounts  and  consolidated  accounts,  amending  Council  Directives  78/660/EEC  and 
83/349/EEC and repealing Council Directive 84/253/EEC (consolidated version). 

2   Regulation  (EU)  No  537/2014  of  the  European  Parliament  and  of  the  Council  of  16  April  2014  on 
specific  requirements  regarding  statutory  audit  of  public-interest  entities  and  repealing  Commission 
Decision 2005/909/EC. 

3   Article 2, point (13) of the Directive defines PIEs as listed companies, credit institutions and insurance 
undertakings.  Member  States  may  also  designate  as  national  PIEs  other  undertakings  that  are  of 
significant public relevance because of the nature of their business, their size or the number of their 
employees. 

4   Article 2, point (1) of the Directive defines statutory audit as an audit of annual financial statements or 

consolidated financial statements. 

5   Competent authorities designated under Article 20(1) of the Regulation.  
6   The ECN is a network for cooperation between the Commission (specifically the Directorate-General 

for Competition) and national competition authorities. 

7   A framework for cooperation between national audit oversight bodies at EU level set up by Article 30 

of the Regulation.  

2 

 
 
                                                 
2006/43/EC). The new audit rules have brought several changes, on issues such as access 
to  and  collection  of  data  by  the  NCAs.  The  availability  of  data  at  national  level  has 
conditioned the level of detail provided by some Member States. This explains some of 
the missing information in the national reports.  

In addition, data collection in many Member States covers different reference periods, as 
audit  firms  have  diverse  financial-year periods for reporting. This  makes EU-wide data 
comparison and consolidation more challenging.  

Also, data collection is subject to different practices in Member States. One example of 
this  is  the  use  of  the  individual  ‘audit  firm  approach’  versus  the  ‘audit  network 
approach’. Lastly, differences in the interpretation of indicators have also conditioned the 
level of detail provided by some Member States.  

In  view of these limitations, a cautious approach needs to  be taken when analysing the 
data and drawing conclusions at EU level.  

2.  DEVELOPMENTS  IN  THE  EU  MARKET  FOR  STATUTORY  AUDITS  OF  PIES:  MAIN 

FINDINGS 

2.1. 

PIE statutory audit market overview  

This  section  describes  the  state  of  the  PIE  statutory  audit  market  before  the  entry  into 
force  of  the  audit  reform.  It  helps  provide  a  proper  understanding  of  the  market  and 
facilitate future assessments in market monitoring reports.  

Statutory audits of PIEs8 such as listed companies, banks and insurance undertakings are 
subject to specific requirements under the Regulation. Member States can also designate 
other  undertakings  as  PIEs  because  of  the  nature  of  their  business,  their  size  or  the 
number of their employees. These are known as national PIEs9.  

An analysis of the PIE statutory audit market in the EU paints a very diverse picture in 
terms of the number of auditors and audit firms, and their turnover.  

PIEs 

Under the previous EU legal framework there were over 25 000 PIEs in the EU10. This 
number  varies  from  a  low  of  64  in  Latvia  to  a  high  of  about  7 000  in  Spain11  (see 
Table 1).  

National PIEs make up the highest percentage of PIEs in the EU12. In all, there are over 
11 100 national PIEs in the EU. Some 15 Member States report having national PIEs. As 
Figure  1  shows,  national  PIEs  account  for  more  than  half  of  all  PIEs  in  eight  Member 
States. Listed companies are second at EU level in percentage terms and have the highest 
share of PIEs in 15 Member States.  

8   As defined in Article 2, point (13) of the Directive.  
9   As defined in Article 2, point (13)(d) of the Directive. 
10   The  reference  year  is  2015,  except  for:  Bulgaria,  Estonia  and  Spain  (2014/2015);  and  Denmark  and 

Germany (2016). Data for Romania is missing. 

11   These  numbers  refer  to  the  previous  legislation  in  place  in  Spain  (Royal  Decree  1517/2011).  The 

number of PIEs in many EU Member States may have changed with the new audit rules.  

12   Data is missing for Romania. 

3 

 
 
                                                 
Figure 1: PIEs per category in EU Member States 

Statutory auditors and audit firms in the EU 

Altogether, there are 250 04713 individuals registered as statutory auditors in the EU. In 
26 Member States14 26 % of registered statutory auditors are employed by or associated 
with an audit firm. These numbers vary widely across Member States15 (see Table 1).  

The UK, France, Ireland and Germany account for 64 % of all registered audit firms in 
the EU, with the largest number (over 6 000) in the UK. Six Member States (Bulgaria, 
Finland, Luxembourg, Malta, Slovenia and Greece) each have fewer than 100 registered 
audit firms.  

About 5 %16  of the total number of registered audit firms in the EU carry out  statutory 
audits of PIEs. Less than one third of registered audit firms in each Member State audit 
PIEs, except in Greece (70 %), Bulgaria (55 %) and Slovakia (34 %). In the Netherlands, 
the UK, Denmark and Ireland the figure is below 2 %.  

Table 1: Overview of market structure in EU Member States  

13   Reference  period  year  2015,  except  for:  Bulgaria  and  Estonia  (2014/2015);  Germany  and  Denmark 

(2016); and Greece (2014). Data is from 28 Member States. 

14   Data from Austria and France is missing. 
15   The  number  for  Italy  includes  a  large  number  of  accountants  who  historically  were  registered  as 
auditors as well. In addition, Ireland has a unique situation, as members of UK-regulated accountancy 
bodies  are  also  registered  in  Ireland.  Therefore,  numbers  for  Ireland  might  be  inflated  due  to  this 
possible  double  counting.  Similarly,  some  Irish  regulated  accountants  may  also  be  registered  in  the 
UK. 

16   Based on data from 28 Member States. 

4 

 
 
 
 
 
                                                 
Number of 
registered 
statutory 
auditors 
(natural 
persons) 

Number of 
registered 
statutory 
auditors 
employed by or 
associated as 
partners or 
otherwise with 
the audit firm 

Number of 
registered 
audit firms 

Number of 
registered 
audit firms 
auditing 
PIEs 

Number of PIEs 

Number of 
statutory audits 
of PIEs 

Belgium 

Bulgaria 

Czech Republic 

Denmark 

Germany 

Estonia 

Ireland 

Greece 

Spain  

France 

Croatia 

Italy 

Cyprus 

Latvia 

Lithuania 

Luxembourg 

Hungary 

Malta 

Netherlands 

Austria 

Poland 

Portugal 

Romania 

Slovenia 

Slovakia 

Finland 

Sweden 

1 052 

704 

1 291 

3 591 

17 342 

353 

9 997 

1 068 

4 177 

13 494 

976 

15 3947 

924 

169 

370 

277 

4 965 

1 276 

1 791 

105 

7 086 

1 378 

4 632 

188 

791 

1 543 

3 476 

United Kingdom 

EU Total 

13 084 

250 047 

861 

243 

287 

3 093 

10 067 

234 

9 997 

826 

2 858 

N/A 

532 

2 938 

924 

150 

265 

275 

2 070 

587 

1 791 

N/A 

3 510 

802 

1 358 

133 

445 

905 

3 476 

13 084 

61 711 

529 

93 

363 

1 568 

2 992 

152 

5 272 

46 

1 395 

6 019 

228 

463 

524 

136 

171 

66 

1 807 

66 

365 

397 

1 612 

229 

969 

54 

233 

80 

146 

6 331 

32 306 

19 

51 

50 

9 

73 

16 

11 

32 

199 

565 

75 

26 

15 

15 

13 

15 

68 

10 

7 

17 

97 

58 

124 

17 

80 

15 

15 

50 

268 

782 

433 

354 

677 

196 

1 005 

324 

7 393 

2 470 

794 

1 578 

147 

64 

156 

379 

245 

168 

approx. 800 

341 

1 992 

1 189 

N/A 

88 

572 

578 

551 

1 741 

1 742 

approx. 25 000 

276 

1 021 

375 

354 

1 040 

196 

1005 

609 

8 006 

3 431 

794 

1 578 

147 

64 

170 

429 

245 

168 

1 013 

341 

2 375 

1 192 

552 

88 

908 

578 

551 

1 748 

29 254 

Turnover and fees from statutory audits of PIEs17 

The  total  turnover  of  audit  firms  auditing  PIEs  in  25  EU  Member  States  (data  from 
Bulgaria,  France  and  Spain  is  not  available)  is  approximately  EUR 31  billion18. 
However,  the  numbers  per  Member  State  show  a  disparity  across  the  EU.  In  eight 
Member  States  the  aggregated  turnover  of  audit  firms  auditing  PIEs  is  above 
EUR 1 billion, whereas in 11 Member States it is below EUR 100 million. The UK alone 

17   To  compare  the  figures  among  Member  States,  the  data  collected  in  national  currencies  has  been 
See 
2015 

converted 
the 
http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=ert_bil_eur_a&lang=en.  

exchange 

average 

annual 

using 

euros 

rates. 

into 

18   The financial year does not always match the 2015 calendar year, which is the reference period for this 
data collection. This is the case for: Bulgaria, Denmark and Estonia (2014/2015); the Czech Republic 
(2014);  and  Slovenia  (2014-2016).  The  data  from  25  Member  States  includes  fees  from  statutory 
audits, assurance services and other non-audit services.  

5 

 
 
 
                                                 
accounts for about half of all turnover of audit firms auditing PIEs in 25 Member States. 
Germany and the Netherlands19 are the largest markets after the UK (see Figure 2).  

Total fees from statutory audits amount to approximately EUR 11 billion20 for the 27 EU 
Member States which provided data. The UK, Germany and France account for almost 
60 % of this total. Some 13 Member States report fees below EUR 100 million.  

Figure 2: Turnover of audit firms auditing PIEs21 and fees from statutory audits22, 
per Member State 

2.2.  Market concentration level 

One  of  the  Regulation’s  main  aims  is  to  have  a  competitive  market  for  statutory  audit 
services in which there is a sufficient choice of statutory auditors or firms for PIEs. The 
requirement  in  Article  27  to  assess  the  concentration  levels  in  the  market  for  statutory 
audits of PIEs highlights how important this aim is. This section therefore seeks to set a 
baseline for measuring progress in this area in future market monitoring reports.  

Member  States  were  asked  to  provide  information  on  the  market  concentration  for 
statutory audits of PIEs of 10 key audit players (‘10KAP’)  23. To calculate turnover, 15 
Member  States24  used  the  audit  firm25  approach26,  seven27  used  the  audit  network28 
approach29 and two30 used both approaches. The financial year differs from audit firm to 

19   See previous footnote. 
20   Reference period 2015, except for: Bulgaria, Denmark and Estonia (2014/2015); the Czech Republic 
(2014);  and  Slovenia  (2014-2016).  Data  from  Portugal  includes  fees  from  other  assurance  services. 
Data from Bulgaria is missing. 

21   Data from Bulgaria, Spain and France is not available. 
22   Data from Bulgaria is not available. 
23   Based on the list identified by the European Audit Inspection Group (EAIG). Baker Tilly; BDO; EY; 

Deloitte; Grant Thornton; KPMG; Mazars; Moore Stephens; Nexia; PwC.  

24   Denmark, Estonia, Greece, Finland, Ireland, Italy, Croatia, Hungary, Lithuania, Luxembourg, Latvia, 

Malta, the Netherlands, Romania and Slovakia. 
25   As defined in Article 2, point (3) of the Directive. 
26   Based on turnover of the individual audit firm in each country. 
27   Belgium, Cyprus, France, Poland, Portugal, Sweden and Slovenia. 
28   As defined in Article 2, point (7) of the Directive. 
29   Based on the sum of turnovers of the individual firms that belong to the same network in each country. 
30   Bulgaria and the Czech Republic. 

6 

 
 
                                                 
audit  firm  and  does  not  always  match  the  2015  calendar  year,  the  reference  period  for 
this data collection31. Therefore, the data presented in this section is approximate.  

Data on market shares is analysed using three different market concentration indicators 
calculated per Member State: the ‘Big Four’ (PwC, Deloitte, KPMG and EY), ‘CR4’ (the 
consolidated market share of the four biggest audit firms in each country), and ‘10KAP’. 
In particular, differences between the Big Four and CR4 have been analysed to assess the 
trends in these market concentration indicators in future reports.  

Concentration by statutory audits of PIEs and turnover (of the network or firm auditing 
PIEs) 

The  Big Four  have  an average  market  share  of  almost  70 %  in  the  number  of  statutory 
audits of PIEs (based on 28 Member States). For turnover, their market concentration is 
around  80 %32  on  average  (based  on  21  Member  States).  The  Big Four  hold  a 
concentrated  oligopoly33  in  1134  Member  States  for  the  number  of  statutory  audits  (see 
Figure  3),  and  in  1535  Member  States  for  turnover.  As  Figure  4  shows,  the  Big Four’s 
combined market share in turnover exceeds 90 % in six Member States36. CR4 beats the 
Big Four’s  aggregated  concentration  ratio  in  seven  Member  States  for  the  number  of 
statutory audits of PIEs and in five Member States for turnover. Therefore, the Big Four 
are the four largest audit firms in most Member States.  

Figure 3: Audit firms’ market share in 2015 for statutory audits of PIEs  

The aggregated market concentration of the six audit  firms with  the biggest shares (for 
turnover) is over half in the 21 Member States for which concentration levels on turnover 
could  be  calculated,  and  exceeds  90 %  in  10  Member  States.  The  combined  market 

31   This is the case with: Bulgaria and Estonia (2014-2015); the Czech Republic: 2014; Denmark: 2014-
2015 and 2015; Slovenia: 2014-2015/2015/2015-2016; Germany: 31.03.2015; Latvia: 31.08.2015. 
32   Average  based  on  21  Member  States.  Concentration  ratios  for  turnover  could  not  be  calculated  for 
seven  Member  States,  due  to  a  lack  of  full  data  (Austria  and  Spain)  or  partial  data  on  turnover 
(Bulgaria, France, Ireland, Poland and Slovakia).  

33   CR4 = 0% means perfect competition; 0%<CR4<50% ranges from perfect competition to oligopoly; 
50%<CR4<80% means oligopoly; 80%<CR4<100% ranges from concentrated oligopoly to monopoly; 
CR4= 100% means highly concentrated oligopoly and even monopoly (if CR1=100%). 

34   Austria,  Cyprus,  Denmark,  Spain,  Finland,  Ireland,  Lithuania,  Luxembourg,  Malta,  the  Netherlands 

and the UK. 

35   Finland, Cyprus, Luxembourg, Latvia, Italy, Lithuania, the Netherlands, Slovenia, Portugal, Hungary, 

Sweden, Germany, the Czech Republic, the UK and Malta. 
36   Cyprus, Finland, Italy, Lithuania, Luxembourg and Latvia. 

7 

 
 
                                                 
shares  (for  turnover)  of  the  10KAP  at  EU  level  total  more  than  90 %  in  16  Member 
States37 and less than 80 % in four Member States.  

Figure 4: Audit firms’ market share for turnover in 2015 (either audit firms or the 
network auditing PIEs) in 21 Member States  

Concentration by individual audit firm  

Figure 5 shows that the Big Four have a combined market share of around 70 % for the 
number  of  statutory  audits  of  PIEs  at  EU  level,  while  the  concentration  level  of  the 
10KAP is close to 80 %.   

Figure 5: Market share of the 10KAP38 for statutory audits of PIEs 

However, in terms of turnover39 (either of the audit firm or of the network auditing PIEs) 
the Big Four cover over 80 % of the total EU audit market. Grant Thornton and BDO are 
the biggest audit firms after the Big Four.  

Concentration of audit firms by PIE category 

37   In  Finland  and  the  Netherlands  only  8  out  of  the  10  key  players  carried  out  statutory  audits  in  the 

reference period; in Sweden, the figure was just seven.  
38   Data for 2014/2015, based on the totals per Member State. 
39   Data from 21 Member States (data from Austria, Bulgaria, Spain, France, Ireland, Poland and Slovakia 

is missing). 

8 

 
 
 
                                                 
Concentration  in  the  market  for  statutory  audits  of  PIEs40  is  the  highest  for  bank  and 
insurance undertakings, where the market share for the Big Four is approximately 80 % 
(see Figure 6). Their market share in the listed companies category is close to 70 %. They 
have a lower market share for national PIEs (around 50 %).  

Figure  6:  Average  market  concentration  in  different  categories  at  EU  level  for 
statutory audits of PIEs 

2.3.  Risks  arising  from  quality  deficiencies  of  a  statutory  auditor  or  audit 

firm 

NCAs carry out quality assurance reviews to check the work of the statutory auditor or 
audit  firm.  Inspections  are  the  main  tool  for  audit  supervisors  to  check  whether  the 
statutory auditor or audit firm have performed their engagement correctly and to identify 
any quality deficiencies. NCAs can use a wide range of powers and measures to correct 
and remedy these deficiencies. Under Article 27 of the Regulation, NCAs must assess the 
risks  arising  from  high  incidences  of  quality  deficiencies  and  assess  whether  it  is 
necessary to adopt measures to mitigate these risks. Given the confidential nature and the 
sensitivity  of  the  information,  data  in  this  section  is  presented  in  an  anonymised  and 
aggregated format. 

Quality assurance reviews  

NCAs reported both on the quantitative and the qualitative aspects of quality assurance41. 
Most Member States reported for the 2015 calendar year (i.e. they reported the results of 
inspections carried out in 2014/15) but with different start and end dates. There were five 
Member States that presented data for an entire cycle of inspections (3 years), using the 
most recent data available in their respective markets.  

Although  this  report  focuses  on  PIE-related  information,  NCAs  were  also  invited  to 
provide  information  on  non-PIEs.  The  purpose  was  to  present  a  broader  and  more 
comprehensive picture of the situation at national level.  

Quantitative assessment 

A series of indicators were used to illustrate the situation:  

40   Data  based  on  28  Member  States  for  statutory  audits  of  PIEs.  Data  from  Austria,  Cyprus,  Spain, 
Hungary,  Luxembourg,  Latvia  and  Poland  is  missing  for  statutory  audits  of  listed  companies,  banks 
and insurance undertakings; data from Austria, Spain, Luxembourg, Latvia and Poland is missing for 
statutory audits of national PIEs.  

41   One Member State did not report anything, as no quality assurance was carried out in 2015. 

9 

 
 
                                                 
-  number of statutory audit engagements (files) inspected;  

-  number of audit firms inspected;  

-  number of audit firms for which firm-wide procedures were inspected;  

-  number of engagement/file reviews with at least one finding; and  

-  number of firm-wide reviews with at least one finding.  

However,  no  common  definition  of  ‘finding’42  was  agreed  for  this  particular  data 
collection.  Instead,  NCAs  were  asked  to  provide  a  definition  or  to  indicate  the 
categorisation followed. 

Figure 7: Quality assurance in the EU 

Since the number of non-PIEs is generally much higher than the number of PIEs, NCAs 
reported  as  expected  a  higher  incidence  of  quality  assurance  in  non-PIEs,  both  for  the 
number  of  inspections  and  for  findings.  On  average  this  equates  to  90 %  or  so  of  the 
entire quality assurance review activity at EU level. However, in 12 Member States the 
percentage  of  PIE  inspections  ranges  between  10 %  and  50 %  of  the  total  number  of 
inspections.  Some  10  Member  States  report  a  similar  range  for  the  number  of  PIE 
findings. In two Member States more than 80 % of the total number of inspections and 
findings target PIEs. In the vast majority of cases the number of inspections and quality 
assurance reviews carried out is in line with and proportionate to the size of the national 
market. 

Qualitative assessment 

Three recurring issues were identified at EU level. They are:  
deficiencies in the internal quality control systems43; 

(i) 

(ii) 

failure to document some aspects of the audit engagement; and 

(iii) 

lack of sufficient audit evidence of having carried out a full audit assessment. 

42    According  to  the  International  Forum  of  Independent  Audit  Regulators  (IFIAR),  inspection  findings 
for  PIE  audits  are  deficiencies  in  audit  procedures  that  indicate  that  the  audit  firm  did  not  obtain 
sufficient  appropriate  audit  evidence  to  support  its  opinion,  but  do  not  necessarily  imply  that  those 
financial statements are also materially misstated. 

43   Quality checks set up and carried out internally by the audit firm. 

10 

 
 
                                                 
There  are  other,  more  diversified  issues,  limited  to  a  few  Member  States.  These  issues 
reflect the specific structure of the different markets, such as: (i) findings on group audits 
in  smaller  Member  States;  (ii)  issues  linked  to  engagement  quality  control  reviews  in 
Member  States  with  a  stronger  audit  practice;  and  (iii)  issues  linked  to  training  in 
Member States with less extensive audit inspection experience.  

The need to adopt measures to mitigate the risks 

The  national  reports  also  described  the  remedies  and  follow-up  measures  taken.  The 
analysis  shows  that  recommendations  are  the  most  common  approach,  followed  by 
reprimands and follow-up measures where firms should confirm that they have taken the 
required steps. Only in a small number of serious cases were sanctions imposed. 

2.4. 

Performance of audit committees 

The new audit rules have boosted the role and powers of the audit committees (ACs)44. 
The Regulation confers specific tasks on PIEs’ ACs. For instance, they play a direct role 
in  the  appointment  of  the  statutory  auditor  or  the  audit  firm,  they  oversee  the  statutory 
audit and they monitor the statutory auditor’s performance and independence. 

Article 27(1)(c) of the Regulation provides for assessment of the ACs’ performance. This 
task has proven to be challenging given the timeline for the first national reports, the lack 
of experience of some NCAs and the changing legal framework. Despite giving an idea 
of the situation at national level, the national reports did not provide a clear picture as to 
whether and how NCAs engage with ACs.  

At the end of 2016 the European Commission submitted additional specific questions to 
the NCAs to better understand the legal framework for ACs in the Member States45. The 
questions  were  meant  to  help  understand  how  Member  States,  in  particular  NCAs, 
engage  with  ACs  and  how  NCAs  see  to  it  that  the  ACs  carry  out  their  assigned  tasks. 
This  was  not  an  attempt  to  lay  down  rules  governing  supervision,  as  the  scope  of 
supervision of ACs depends on each Member State.  

The  results  show  that  ACs  are  subject  to  supervision  in  15  Member  States.  Some  12 
Member States reported that ACs are not subject to supervision and one Member State46 
did not provide information. As shown in Figure 8, practices vary widely among Member 
States as to which authority is responsible for supervision.  

Figure 8: Authority responsible for supervising ACs in Member States 

44   As described in Article 39 of the Directive. 
45   In the survey the Commission understood supervision in the sense of whether NCAs had legal powers 

to: 
-  obtain  information,  including  whether  audit  committees  exist  and  if  they  comply  with  their 

obligations (i.e. under Article 39 of the Directive or Article 16 of the Regulation); or 
-  impose remedies or sanctions if audit committees do not comply with their obligations. 

46   Romania. 

11 

 
                                                 
[Source: Questionnaire for NCAs on ACs] 

The Regulation does not mention any specific task or power for NCAs vis-à-vis the ACs. 
This  is  left  to  the  discretion  of  the Member  States,  which  also  have  different  corporate 
governance  frameworks.  The  Commission  enquired  as  to  whether  NCAs  carry  out 
activities  with  ACs  other than  supervision.  In  response  the  NCAs  cited  staging 
conferences  and  workshops,  sharing  best  practice  and  guidance,  holding  meetings  and 
discussions, sharing annual reports, processing applications from ACs, working with AC 
advisory groups and reporting (see Figure 9). In some cases the NCAs reported that they 
are involved in more than one activity with ACs.   

Figure 9: NCA activities with ACs (% of Member States which responded) 

[Source: Questionnaire for NCAs on ACs] 

3.  CONTRIBUTION FROM THE EUROPEAN COMPETITION NETWORK  

Article  27  of  the  Regulation  also  states  that  the  European  Competition  Network  must 
draw up a report.  

The Commission invited all national competition authorities to provide information about 
possible sector inquiries carried out in their jurisdictions and their enforcement record in 
the  audit  market  (e.g.  any  antitrust  investigations,  assessments  of  notified  mergers, 
investigations of complaints or State aid). The reference period was 2014-2015.  

Of  the  13  national  contributions  to  the  ECN  report,  only  five  reported  on  specific 
enforcement or reporting activities. Denmark provided information about the merger of 

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EY  and  KPMG  approved  in  2014.  Poland  reported  that  its  audit  sector  is  highly 
concentrated in the hands of the Big Four and that there are high entry barriers. Romania 
reported on an  ongoing investigation into the Romanian Financial  Audit  Chamber. The 
UK and Portugal gave information about their enforcement (UK) and reporting activities 
(Portugal and UK).  

The  Commission  did  not  conduct  any  sector  inquiries,  antitrust  investigations, 
assessments  of  notified  mergers  or  investigations  of  state  subsidies  in  the  audit  market 
during the relevant reference period.  

4.  CONCLUSIONS  

The new audit rules aim for better audit quality and a more competitive audit market for 
statutory  audits  of  PIEs  to  enable  capital  markets  to  run  smoothly.  The  available  data 
shows a very diverse EU audit market in terms of size and structure and confirm that the 
market  for  statutory  audits  of  PIEs  remains  relatively  concentrated  in  most  Member 
States,  particularly  in  terms  of  turnover.  In  15  of  21  Member  States  the  Big Four  hold 
more than 80 % of the market share for turnover. Banking and insurance undertakings are 
the  PIE  categories  where  the  Big Four  have  the  highest  EU-wide  market  concentration 
(about 80 %). However, there is insufficient evidence to draw conclusions about the level 
and  effectiveness  of  competition  in  the  market.  The  Commission  will  continue 
monitoring  trends  in  the  consolidated  concentration  levels  of  the  largest  audit  firms  in 
Member States in future reports.  

The information collected from the quality assurance systems is of great help in gauging 
the  effectiveness  of  the  new  audit  rules,  both  for  investor  protection  and  for  public 
oversight.  To  ensure  consistency  and  comparability,  a  common  methodology  and 
supervisory convergence in this area will become crucial. For instance, more work could 
be  done  to  encourage  further  convergence  around  common  indicators  and  the 
terminology  for  findings  and  deficiencies.  No  major  risks  have  been  identified.  In  any 
case, as  data was collected under the powers  given by the previous legal framework to 
NCAs, it is certainly too early to fully assess major risks.  

Clearly,  the  next  joint  report  should  analyse  whether  the  three  most  frequent  issues 
identified  in  this  report  (deficiencies  in  the  internal  quality  control  systems,  failure  to 
document some aspects of the audit  engagement,  and lack of sufficient audit  evidence) 
risk  becoming  structurally  recurrent.  In  particular,  the  next report  will need  to  evaluate 
what  the  potential  consequences  might  be,  not  only  for  specific  PIEs  but  also  for  the 
whole market. 

The audit reform has boosted both the role and powers of the audit committees, as they 
are essential to giving the new audit rules real teeth. The analysis, however, shows that 
most  NCAs  have  very  little  experience  in  monitoring  the  ACs’  activities  and 
performance.  To  overcome  this  problem  the  NCAs  should  have  appropriate  tools  to 
assess the ACs’ performance and receive the information they need to monitor how ACs 
are complying with the new rules. For their part, AC members should be made aware of 
their new responsibilities and more prominent role. At this stage, engaging with ACs and 
raising  awareness  is  vital.  This  would  not  necessarily  entail  redefining  or  changing  the 
national  corporate  governance  frameworks  or  the  supervisory  remit  of  NCAs.  Each 
national  authority  would  be  free  to  decide  the  best  approach  and  the  most  appropriate 
tools  to  assess  the  ACs’  performance.  Existing  experience  shows  that  cooperation  and 
dialogue  are  useful  and  effective  tools.  Some  NCAs  have  already  started  meeting  ACs 

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(and have even provided guidelines) to make them aware of the new framework and  of 
their  additional  responsibilities.  However,  a  great  deal  of  work  clearly  remains  to  be 
done.  The  Commission  could  have  a  role  to  play  in  promoting  this  dialogue  and  in 
engaging  with  ACs  directly  to  better  understand  their  experience  in  implementing  the 
audit reform. 

This first Commission report will certainly act as the baseline scenario for future reports. 
Moreover,  solutions  will  be  needed  to  address  some  of  the  limitations  outlined  in  the 
introductory section. Some of these limitations will be addressed as the new audit rules 
take  effect.  This  is  the  case  for  access  to  and  availability  of  data,  as  the  new  legal 
framework  provides  for  new  sources  of  information  and  tools  for  the  NCAs  and  the 
Commission. However, further work will be required if there is to be progress on areas 
such as common terminology, convergence around reference periods and methodologies 
for  data  collection.  To  move  forward  on  convergence,  the  Commission  will  work  to 
review the current indicators in close cooperation with the NCAs, and especially with the 
CEAOB sub-group on market monitoring. This is particularly important in view of some 
of  the  provisions  added  by  the  new  audit  rules,  such  as  the  rotation  periods,  a  ban  on 
certain non-audit services, and a new role for the ACs. In future reports the Commission 
will  be  looking  at  these  new  rules  as  well,  to  measure  the  level  of  competition  in  the 
market  on  statutory  audits  of  PIEs  and  to  assess  the  full  impact  of  the  new  regulatory 
framework. 

The  Commission  will  continue  monitoring  developments  in  the  market  for  providing 
statutory audit services to PIEs in the EU. It stands ready to work with Member States to 
ensure that the requirements in Article 27 of the Regulation can be fulfilled as effectively 
as possible. 

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