REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN SYSTEMIC RISK BOARD on developments in the EU market for statutory audit services to public-interest entities pursuant to Article 27 of Regulation (EU) No 537/2014
Date: 2021-01-28
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, accountant, audit, auditing, financial control, management audit, market supervision, provision of services, services of general interest

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.1.2021  COM(2021) 29 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT,  THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROPEAN SYSTEMIC RISK BOARD   on developments in the EU market for statutory audit services to public-interest entities pursuant to Article 27 of Regulation (EU) No 537/2014  
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT,  THE COUNCIL, THE EUROPEAN CENTRAL BANK AND 
THE EUROPEAN SYSTEMIC RISK BOARD  

on developments in the EU market for statutory audit services to public-interest 
entities pursuant to Article 27 of Regulation (EU) No 537/2014 

1. 

INTRODUCTION 

The  audit  legislation  adopted  in  the  aftermath  of  the  financial  crisis  was  aimed  at 
improving  statutory  audits  in  the  EU  by  reinforcing  auditors’  independence  and  their 
professional  scepticism  vis-à-vis  the  management  of  the  audited  company.  Pursuant  to 
Article 27  of  Regulation  (EU)  No 537/20141  (‘the  Regulation’),  this  report  assesses 
developments  in  the  EU  market  for  carrying  out  statutory  audits  on  public-interest 
entities (PIEs) between 2015 and 2018, focusing on: 

  market concentration; 

 

 

the risks arising from audit quality deficiencies; and  

the performance of audit committees (ACs). 

Unless  otherwise  specified,  reports  from  the  national  authorities  responsible  for  audit 
oversight (NCAs) are the main source of data. It refers mostly to 2017 and 2018 and was 
collected in 2019 on the basis of selected market indicators. It thus includes data from the 
United  Kingdom.  The  Commission  prepared  the  report  in  cooperation  with  the 
Committee of European Auditing Oversight Bodies (CEAOB). 

This is the first such report since the EU audit reform (see above). Overall, the data was 
more accurate than in 2017. However, EU-level data consolidation remains a challenge, 
due to a lack of national data on turnover and revenues, different reporting periods and 
differences in the implementation of EU audit legislation. Also, comparability in the area 
of  quality  assurance  indicators  remains  a  challenge,  due  to  the  NCAs’  use  of  different 
methodologies.   

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

2.1.  Market overview 

The  Regulation  lays  down  specific  requirements  for  statutory  audits  of  PIEs  whose 
definition  is  given  in  the  audit  Directive2  such  as  listed  companies,  banks,  insurance 
undertakings and ‘national PIEs’ designated by Member States (e.g. undertakings that are 

1   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 (OJ L 158, 27.5.2014, p. 77). 
in Article 2(13) of Directive 2006/43/EC. 

2  

1 

 
 
 
                                                 
of significant public relevance because of the nature of their business, their size or how 
many employees they have). 

This section describes the PIE statutory audit market 2 years after the audit reform. 

Fewer statutory auditors and audit firms in the EU; less choice for PIEs. 

The figures show a decrease from 2015 in the number of EU sole practitioners, including 
a  slight  fall  in  the  number  of  statutory  auditors  employed  by  and  associated  with  audit 
firms  (as  partners  or  otherwise)3.  The  number  of  registered  audit  firms  in  the  EU  also 
dropped,  by  6%.  The  proportion  of  audit  firms  auditing  PIEs  is  close  to  4%  of  all 
registered audit firms, down almost 2 percentage points from 2015. 

Table 1:  EU registered statutory auditors and audit firms (2015-2018) 

This contraction in the number of registered statutory auditors and audit firms coincided 
with a fall in the number of PIEs, mostly driven by a cut in the number of ‘national PIEs’ 
as a result of most Member States revising their definition of that concept. 

The  number  of  PIE  statutory  audits  also  shrank,  by  around  a  third4,  in  2015-2018 
(Figure 1).  Listed  companies  were  the  largest  type  of  PIE  across  the  EU  in  2018, 
representing 44% of the  total.  The relative weights  of PIE categories5 vary by Member 
State, but the most significant change was a 73 percentage points cut in the ‘national PIE’ 
category, which was the largest in 2015 but represented just 19% of all PIEs in 2018. 

Joint PIE audits represent only 9% of PIE statutory audits. Of the 10 Member States 
that reported joint audits6, France again had the most (86% of the EU-28 total). 

Figure 1:   PIEs and PIE statutory audits, EU-28 (2015-2018) 

3   The figures are for 26 Member States (no data from Austria or France (2015)). 
4   Reference year is 2018 (data for EU-28). 
5   The 2015 figures were based on the definition of ‘PIE’ before the audit reform. 
6   Austria, Bulgaria, Estonia, Greece, Spain, France, Malta, Romania, Sweden and the UK. Most reported 

that joint audits accounted for fewer than 1% of their statutory audits. 

2 

20152018ChangeStatutory auditors 250 047225 360-10%Statutory auditors employed by or associated as partners or otherwise with the audit firm61 71160 005-3%Audit firms32 30630 504-6%Audit firms auditing PIEs 1 7421 127-35% 
 
 
 
                                                 
 35 000

 30 000

 25 000

 20 000

 15 000

 10 000

 5 000

 -

 25 275  

-35% 

 16 418  

PIEs

 29 254  

-35% 

 18 921  

-20%

-25%

-30%

-35%

-40%

-45%

-50%

-55%

-60%

-65%

-70%

PIE Statutory audits
2018

2015

variation

The  EU  turnover  of  audit  firms  auditing  PIEs7  increased  by  an  estimated  9%8  in 
2015-2018, while non-audit work dominated the revenues of large audit firms. 

EU-279 turnover of audit firms  auditing PIEs was about  €34 billion10  in  2018. Data for 
the  10  key  audit  firms  (10KAP11)  supports  an  estimate  for  EU-28  turnover  of  around 
€40 billion. Revenues from statutory audits12 rose by 6%13 to almost €12.7 billion, 25% 
of which was from PIE statutory audits. 

Turnover figures by Member State vary widely, with Germany and the UK still the two 
largest markets (65% of EU turnover of audit firms)14.  

Around two thirds of the EU turnover of audit firms auditing PIEs, reported by firm or 
at  network  level,  originated  from  non-audit  service  (NAS)  revenues  (from  permitted 
NAS to audited entities and NAS to other entities15), showing business diversification 
and a focus beyond traditional audit work. 

7   Turnover indicators in the first report were based on the previous EU audit legislation. In this report, 
NCAs  follow  the  definition  and  requirements  in  Article  13(2)(k)  of  the  Regulation,  which  was 
implemented in 2016. For the purpose of this report, we compare ‘revenue from PIE statutory audits’ 
(2018) with ‘fees from PIE statutory audits’ (2015). 

8   Using comparable data  from  Member States. Data  for 2015 refer to 25 Member States  (no data  from 
Bulgaria, Spain or France); data  for 2018 refer to 27 Member States (no data  from France). Data not 
adjusted  for  inflation.  On  average,  EU-28  inflation  (HICP)  was  0.1%  in  2015  and 1.9%  in  2018;  see 
Eurostat: https://ec.europa.eu/eurostat/web/products-datasets/product?code=tec00118 

9   No data from France for ‘revenues from NAS’ or ‘total turnover’. 
10   Data  collected  in  national  currencies  has  been  converted  into  euros  using  2018  annual  average 
Eurostat: 

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

Source 

rates. 

11   Based  on  the  list  identified  by  CEAOB:  Baker  Tilly,  BDO,  EY,  Deloitte,  Grant  Thornton,  KPMG, 

Mazars, Moore Stephens, Nexia and PwC. 

12   Article  13(2)(k)(i)  and  (ii)  of  the  Regulation.  Data  for  27  Member  States  (no  data  from  Bulgaria  for 

‘revenues from statutory audits’). 

13   For Member States that provided data in both 2015 and 2018. 
14   Data for 27 Member States (no data from France). 
15   Article 13(2)(k)(iii) and (iv) of the Regulation. 

3 

 
 
                                                 
Only  9%  of  total  EU  turnover  was  from  revenues  from  PIE  statutory  audits;  35%  was 
from all statutory audit services (Figure 2). However, this varies across Member States; 
in seven Member States16, less than a third of revenues was from statutory audits. 

16   Cyprus, Denmark, Ireland, the UK, Malta, Sweden and Luxembourg. 

4 

 
 
 
                                                 
Figure 2:  Revenue  breakdown  of  EU  turnover  of  audit  firms  auditing  PIEs17 

(2018) 

51% 

9% 

26% 

14% 

Revenues from statutory audit of
PIEs and entities belonging to a
group of undertakings whose
parent undertaking is a PIE
Revenues from the statutory audit
of other entities

Revenues from permitted NAS to
audited entities

Revenues from NAS to other
entities

Four NCAs18 from the European Competition Network reported that they had carried out 
a  sector  inquiry  in  the  audit  market  or  an  antitrust  or  merger  activity  in  the  sector  in 
2015-2018. The UK reported on a study on its national statutory audit market19. 

2.2.  Market concentration  

Member States provided market data20 for PIE statutory audits by the ‘Big Four’ (PwC, 
Deloitte, KPMG and EY), ‘CR4’ (the four biggest audit firms in each country) and the 
10KAP. 

Persistently high market concentration in 2015-2018. Overall, the Big Four remained 
the largest audit firms, but changes in their individual shares are visible21. There are 
also signs of higher concentration in the 10KAP than in the previous report22.  

The  Big Four  hold  an  oligopoly23  in  13  Member  States  (up  from  11  in  2015)  and  an 
average EU market share of 70% of all PIE statutory audits. In seven Member States only 
are they not the four largest audit firms (Figure 3). 

17   No data from France, Belgium Spain or Lithuania. 
18   Italian, Romanian, Spanish and UK NCAs. 
19   https://assets.publishing.service.gov.uk/media/5d03667d40f0b609ad3158c3/audit_final_report_02.pdf  
20   Most Member States based turnover on audit firms (as defined in Article 2(3) of Directive 2006/43/EC) 
as  opposed  to  the  audit  network  (as  defined  in  Article  2(7)).  Data  presented  is  approximate  due  to 
differing reference periods. 

21   See  also  European  Parliament  study,  EU  statutory  audit  reform:  impact  on  costs,  concentration  and 

competition; 
https://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_STU(2019)631057  

22   https://ec.europa.eu/info/publications/170907-statutory-audit-services-report_en 
23   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%). 

5 

 
 
 
 
                                                 
 
Figure 3:   Audit firms’ market share in number of PIE statutory audits (2018) 

The  Big  Four  are  even  more  dominant  in  terms  of  revenue  from  PIE  statutory  audits 
(Figure 4).  Among  the  Member  States  in  which  they  had  an  aggregate  market  share 
below the EU average, France24 reported that 60% of all PIE statutory audits were joint 
audits. 

Figure 4:  % of PIE statutory audits, % of revenue from PIE statutory audits and 

% of revenue from audits of other entities, by Member State (2018)25 

The Big Four still dominate the PIE statutory audit market  

The Big Four’s EU26 aggreggated concentration level in number of PIE statutory audits 
fell  by  about  3  percentage  points,  with  Deloitte  experiencing  a  drop  of  close  to  9 
percentage  points.  The  Big  Four  held  about  66%  of  the  aggregated  market  of  PIE 
statutory  audits  in  2018  (Figure 5).  In  terms  of  audit  firms’  total  turnover27,  they 
accounted for around 80% of the EU total. 

24   France is the Member State with the biggest proportion of joint audits (compared to the total number of 
statutory  audits).  Estonia  has  the  second  biggest  proportion  (33%)  and  Bulgaria  the  third  (19%). The 
other Member States that reported joint audits had proportions of around 1-3%. 

25   No  data  from  Lithuania,  Spain  or  Romania  for  Big  Four  market  share.  Data  from  Portugal  not 

processed for technical reasons and needs to be updated in the next report. 

26   Data from 25 Member States (no data from Spain, France or Romania). 
27   As defined in Article 13(2)(k) of the Regulation. 

6 

 
 
 
                                                 
Figure 5:   10KAP market share28 of number of PIE statutory audits (2018) 

All other audit 
firms 
22% 

RSM 
1% 

Baker Tilly  
1% 

Nexia  
1% 

Grant Thornton  
3% 

BDO 
4% 

Mazars 
4% 

PwC  
19% 

KPMG  
18% 

EY 
13% 

Deloitte 
14% 

The  Big Four  dominate  the  PIE  statutory  audit  market,  with  over  90%  of  total 
revenues. 

In the market for statutory audits of other entities, the Big Four have a share of close to 
70%. They also hold an aggregated market share of around 85% in segments not related 
to audit work (permitted NAS to audited entities and NAS to other entities) (Figure 6). 

Figure 6:  EU market shares of audit firms auditing PIEs in each market segment, 

revenues (2018) 

28   Based on totals by Member State given in national reports and market monitoring sub-group analysis. 

7 

 
 
 
 
 
 
                                                 
The Big Four or their network29 derive a significant proportion (around 70%) of NAS 
revenues30 from audit and non-audit clients; the situation varies across Member States. 

The estimated EU revenue structure shows that the Big Four generate close to 30%31 of 
their revenues from audit practices and a high percentage (close to 60%) from non-audit 
work, particularly NAS for other entities. 

2.3.  Risks arising from quality deficiencies 

Most NCAs’ reporting on quality assurance related to inspection cycles of 1 year, carried 
out  mostly  in  2018  but  with  different  start  and  end  dates.  Seven  NCAs  reported  data 
referring to 3-year inspection cycles. For the purpose of this report, we use the CEAOB 
definition of findings, which tallies with that of the International Forum of Independent 
Audit Regulators (IFIAR)32. Because of the need to exercise professional judgment when 
interpreting  Member  States’  categorisation  of  quality  deficiency  data,  it  is  difficult  to 
aggregate the information and draw general conclusions at EU level.   

The number of PIE audit files inspected decreased by 25%, along with a 35% drop in the 
number of PIE statutory audits (due to  changes in  Member States’ definition of ‘PIE’). 
Despite fewer PIE  audit engagement inspections, there appears to  have been more of  a 
focus on PIE audit engagements as compared with the full audit inspection population in 
2015-2018. 

The  qualitative  assessment  section  below  is  based  on  data  from  national  market 
monitoring reports and a CEAOB analysis33. It covers two main areas:  

  deficiencies; and  

  mitigation and systemic risk analysis. 

The  most  frequent  issues  highlighted  (as  in  2017)  are  deficiencies  in  audit  firms’ 
internal  quality  control  systems  (e.g. 
lack  of  sufficient  audit  evidence  and 
documentation). Audit supervisors will continue to focus on these. 

The main common findings with respect to internal quality control systems relate to: 

 

 

ethics and the independence of statutory auditor or statutory audit firm staff34;  

engagement quality control review (EQCR)35;  

29   Some  Member  States  reported  revenues  on  an  audit  firm  basis;  others  reported  revenue  at  network 

level. 

30   Some  audit  oversight  authorities  report  challenges  in  measuring  NAS  to  other  entities,  as  those  are 

services outside the audit firm. 

31   Data  from  24  Member  States  (data  partly  missing  for  Belgium,  France  and  Lithuania).  Data  from 

Portugal not processed for technical reasons. 

32  According  to  the  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. 

33   The  CEAOB  analysis  is  based  on  audit  inspection  findings,  as  reported  by  Member  States  in 
2017/2018, in the database maintained by the CEAOB Inspection Sub-Group. It analysed the database 
to identify themes that drive dialogue between audit firms / standard-setters and CEAOB and to alert 
inspectors to high-risk areas. It focused on the incidence of findings by ISAs, quality control and ethics. 

34   e.g. inappropriate assessment and approval of NAS and inappropriate testing of staff independence. 
35   e.g.  lack  of  compliance  with  main  legal  requirements,  inappropriate  documentation  of  the  review, 

ineffective EQCR and inappropriate selection of staff performing the ECQR. 

8 

 
                                                 
 

 

lack of, or inappropriate, monitoring of high-risk audited entities; and  

lack of audit evidence and audit documentation. 

As  regards  the  inspections  on  PIE  audit  engagement  files,  NCAs  identified  common 
findings in the following main areas:  

 

risk assessment36;  

  materiality and sampling37;  

 

 

internal control testing38;  

audit quality and evidence; and  

  group audits. 

This  tallies  with  the  five  international  standards  on  auditing  (ISAs)  identified  in 
CEAOB’s  analysis  as  the  subject  of  the  most  findings  (over  60%  of  all  audit  findings 
from 22 NCAs in the CEAOB database):  

 

 

 

 

 

the auditor’s responses to assessed risks (ISA 330)39;  

audit evidence (ISA 500)40;  

auditing  accounting  estimates,  including  fair  value  accounting  estimates,  and 
related disclosures (ISA 540)41;  

identifying  and  assessing 
understanding the entity and its environment (ISA 315)42; and 

risks  of  material  misstatement 

the 

through 

special considerations — audits of group financial statements, including the work 
of component auditors (ISA 600)43. 

Most  NCAs  put  in  place  mitigation  measures  and  remedies  to  address  the  identified 
findings.  However,  most  of  the  audit  oversight  bodies  reported  no  sanctions  being 

36   e.g. insufficient understanding of the audited entity and its environment, insufficient understanding of 

management’s risk assessment and identification process. 

37   e.g. deficiencies in the method used for determining materiality level, lack of appropriate justification 

for sample size selection. 

38   e.g. inappropriate documentation of key internal controls, insufficient testing on IT and other internal 

controls. 

39   e.g. failure to design and perform appropriate  audit procedures to address assertion-level risk such as 
appropriate  recognition,  measurement  and  presentation  of  transactions,  account  balances  and 
disclosures.  Findings  relating  to  a  failure  to  perform  sufficient  audit  procedures  to  conclude  on  the 
effectiveness  of  the  controls  tested  and  failure  to  adequately  test  revenue  recognised  in  the  financial 
statements. 

40   e.g. IT remains an area of concern, as the auditors failed to adequately test IT systems used by the entity 
to  prepare  the  financial  information  and  to  obtain  sufficient  audit  evidence  on  the  accuracy  and 
completeness of the information produced by the entity and used for the auditors’ purposes. 

41   e.g.  failure  to  adequately  challenge  management’s  valuation  models  (including  inputs)  and  the 
reasonability  of  the  key  assumptions  used  to  produce  the  estimates;  failure  to  identify  inadequate  or 
incomplete financial statement disclosures. 

42   e.g. failure of the auditor to gain an adequate understanding of the entity and of its environment; failure 

to adequately identify and assess key significant risks. 

43   e.g.  incomplete  instructions  given  to  the  component  auditor;  lack  of  discussion  with  component 
auditors  on  the  work  planned  or  performed;  component  auditors  not  providing  enough  detail  when 
reporting back to the group auditor; failure of the group auditor to evaluate the work performed by the 
component auditor and to take account of the findings reported by component auditors. 

9 

 
                                                 
applied as  a result of the findings and no systemic risk. In general,  the findings and 
sanctions do not apply to the same reporting period (it takes some time to investigate 
and impose sanctions).   

A  third  of  the  Member  States  provided  no  information  as  regards  repeat  findings 
(i.e. same  findings  identified  in  the  same  audit  firms  in  previous  inspection  cycles)  or 
stated that there were none.  

The most common reported areas for mitigation and risk analysis were:  

 

 

 

 

ethics and independence;  

risk assessment and EQCR;  

analysis of the internal control system and EQCR; and  

fair value measurements and fraud procedures. 

Remediation action plans and root-cause analysis are among the most common follow-up 
measures.  Not all findings will warrant  sanctions and 60% of NCAs said that they had 
not imposed any. Some audit oversight bodies made recommendations to the audit firms, 
with implementation deadlines. 

The level and measurement of systemic risk44 remains diverse. Most NCAs identified no 
systemic  risks.  Four  reported  systemic  deficiencies  at  national  level,  but  indicated  that 
the findings could not, in combination, lead to the demise of an audit firm. The CEAOB 
analysis reported that NCAs engage with and challenge audit firms through interaction in 
regulatory colleges and meetings at Inspections Sub-Group plenary sessions. 

2.4. 

Performance of audit committees 

The  available  data  does  not  allow  for  an  overall  assessment  of  ACs’  performance, 
given  the  differing  approaches  to  AC  monitoring  across  Member  States  and  the  fact 
that  most  information  is  based  on  ACs’  self-assessment.  However,  NCAs  have  made 
progress in gathering information and establishing a relationship with ACs. 

Article 39 of the Audit Directive45 requires companies to set up ACs (of which there are 
about 6 40046) and Article 27(1)(c) of the Regulation requires NCAs to monitor the ACs’ 
performance.  ACs  are  most  commonly  constituted  as  a  stand-alone  committee  or  a 
committee of a supervisory/administrative body and play a central  role in the corporate 
governance  model,  in  particular  for  larger  PIEs.  They  interact  with  various  actors, 
supervisory/administrative  bodies)  and  externally 
internally 
(e.g. external auditors, shareholders and regulators). 

(e.g. management, 

44   Article 27(1)(a) of the Regulation refers to risks arising from a high incidence of quality deficiencies of 

a statutory auditor or audit firm, including systemic deficiencies within an audit network. 

45   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 (OJ L 157, 9.6.2006, p. 87). 

46   Data from 19 Member States. Of the remaining Member States, five have no direct oversight and four 

did not provide data. 

10 

 
                                                 
Oversight  bodies  obtained  information  from  the  ACs  through  various  channels.  For 
example, a targeted CEAOB questionnaire47 was sent to a sample of ACs across Member 
States. However, as this involved AC self-assessment, it has limitations when it comes to 
interpreting the data. 

ACs are subject to NCA oversight in 21 Member States. 

The EU legislation does not specify NCAs’ oversight tasks vis-à-vis the ACs. There are 
wide  variations  among  Member  States  as  regards  which  authority  is  responsible  for 
supervising  and  interacting  with  them.  Most  often,  NCAs  share  responsibility  with  the 
national financial supervisory authority. 

NCAs engage in different ways with the ACs under their jurisdiction. Most do so mainly 
through surveys/questionnaires, dialogue and workshops, webinars and conferences. 

The CEAOB questionnaire48 showed a need for more monitoring of ACs’ interactions 
with external auditors, the organisation of tender processes, approval of the provision 
of permitted NAS, and the recording of fees paid. 

The  feedback  indicates  compliance  with  the  main  requirements  for  ACs’  composition 
and skills49, their independence and interaction with the administrative/supervisory body, 
and the oversight of the audit function.   

However, the results show that the selection process for audit tenders is a challenge for 
ACs – replies on this topic indicate either non-compliance with the audit legislation or a 
lack of understanding of how to apply it. 

The auditor selection process 

ACs  are  responsible50  for  the  procedure  for  selecting  statutory  auditors.  About  87% 
actually claim  to  do so.  75% of the PIEs that proceeded to  tender invited two to  seven 
audit firms. 16%  issued an invitation to tender to just one, even though Article 16(2) of 
the Regulation requires that at least two be invited to participate in the tender process. 

In addition, there is a correlation between the number of audit firms invited to participate 
in a tender and the number that finally submitted an offer. About 55% of ACs reported 
that two or three statutory  auditors (audit firms) generally submitted an offer following 
the  tendering  process.  However,  analysis  of  the  responses  showed  that  19%  of  ACs 
receive only one credible bid.   

Half of the ACs said that the tender process allows for the participation in the selection 
procedure  of  firms  that  received  less  than  15%  of  their  total  fees  from  PIEs  in  the 
Member  State  in  the  previous  calendar  year.  These  ACs  may  not  fully  understand,  or 
may not be applying, Article 16(3) of the Regulation. 

47  The  aim  of  the  questionnaire  was  to  assess  compliance  with  the  requirements  of  the  audit  legislation 
and establish a relationship between NCAs and ACs; 25 Member States (the exceptions were Estonia, 
Hungary and Slovakia) included their consolidated replies in their national reports. In total, 2 770 ACs 
across 26 Member States received the questionnaire and the response rate was about 60%. 

48   The size of the sample chosen by each NCA varies considerably across the EU, when compared to the 

number of PIEs in each Member State. 
49   Article 39(6)(a) of Directive 2006/43/EC. 
50   Article 16(3) of the Regulation. 

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Interaction with the external auditor 

ACs are responsible for reviewing the independence of the audit firm and the quality of 
audit,  including  the  approval  of  permitted  NAS,  tendering  and  the  selection  of  the 
external  auditor51.  About  half  confirmed  that  the  statutory  auditor  (or  a  member  of  its 
network) submitted a tender for the provision of permitted NAS52. 80% said that they did 
not  examine  requests  for  the  provision  of  NAS  in  accordance  with  Article 5(4)  of  the 
Regulation. 4% did not monitor fees paid to the statutory auditor. 

3.  CONCLUSIONS 

This report describes developments in the market for the provision of PIE statutory audits 
between 2015 and 2018. These give some preliminary indications as to the effects of the 
audit reform and point to possible areas for further assessment. Such assessment should 
take into account recent scandals involving high-profile corporate entities across the EU 
(e.g. Carillion, Thomas Cook and Wirecard), which can undermine the reputation of the 
audit profession and investor confidence. 

The key findings of this report are as follows: 

1)  Persistent  high  concentration,  as  the  Big  Four  still  dominate  the  PIE  statutory 

audit market in most Member States 

The dominance of the Big Four in the majority of Member States, combined with the 
high proportion of revenue from non-audit work, could affect their independence, the 
level  of  audit  fees  and  audit  quality.  The  risk  is  exacerbated  by  the  remedial 
measures  to  ease  audit  firms’  conflicts  of  interest  as  regards  PIEs  (e.g. rotation 
requirement,  prohibited  NAS,  cap  on  permitted  NAS,  etc.),  which  may  reduce  yet 
further the choice of PIE statutory auditors or audit firms in the market. 

The  Commission  will  therefore  pay  particular  attention  to  monitoring,  in  close 
cooperation  with  the  NCAs  and  CEAOB,  how  the  new  rules  are  influencing 
competition on the market for PIE audits. In addition, it will assess how the options 
under the Regulation affect national markets and the EU level playing field. 

NCAs are encouraged to close data gaps (e.g. on NAS revenues, etc.) to improve the 
monitoring of market developments and concentration analysis. 

2)  The assessment of quality deficiencies remains challenging 

The quality issues that crop up most often at EU level remain:  

  deficiencies in audit firms’ internal quality control systems; 

 

 

lack of, or inappropriate, monitoring of high-risk audited entities; and  

lack of audit evidence and documentation.  

To improve the quality of assessments, it may help to enhance convergence for the 
audit industry in the EU as regards types of supervisory action, remedial follow-up 
measures and sanctions imposed. 

Following these findings, the Commission will evaluate the EU audit legislation and 
assess  possible  ways  of  improving  the  consistency  of  quality  assurance  and 

51   Article 4(2)  of  the  Regulation;  Article 39(6)(e)  of  Directive 2006/43/EC;  Article 6(2)(b)  of  the 

Regulation. 

52   Article 5(4) of the Regulation. 

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investigation  and  sanctions  arrangements  across  Member  States.  It  will  also  assess 
the need to make inspection reports (including a description of work done as part of 
the inspection) more accessible by the public, or at least by ACs. This could involve 
digitalising or tagging reports more to facilitate access. 

The pre-defined categorisation of findings used for the quality assurance indicators in 
the  second  report  improved  the  assessment  of  the  data  provided  by  NCAs. 
Nonetheless, NCAs should do more to: 

 

 

ensure convergence in the interpretation of findings and categories; 

identify effective quality indicators to improve the measuring of audit quality; 
and  

 

enhance the evaluation and interpretation of systemic risk.  

The  report  confirms  that  the  same  issues  arise  repeatedly  and  therefore  seem  to  be 
structural. The Commission will liaise with CEAOB to identify measures to improve 
the situation.   

3)  Differing approaches to monitoring across the EU challenge NCAs’ assessment of 

ACs’ performance 

Most audit supervisors  engaged with  ACs  under  their jurisdiction. NCAs improved 
their  knowledge  of  the  ACs’  work,  especially  through  the  CEAOB  questionnaire, 
which was based on self-assessment. However, this  provided only a limited insight 
into the ACs’ performance. 

The  Commission  will  assess  possible  ways  of  improving  NCAs’  ability  to  oversee 
ACs.  It  will  also  analyse  how  to  reinforce  ACs’  independent  role  in  the  selection 
process and oversight of the auditor. It has been working with CEAOB to facilitate 
the dialogue between ACs and NCAs, in particular through seminars or conferences. 
It will evaluate how further to facilitate such interaction. 

In  order  to  facilitate  a  more  detailed  assessment  of  ACs’  functioning  and 
effectiveness,  NCAs  are  recommended  to  reach  out  to  more  ACs  at  national  level 
and to develop their understanding of how ACs operate and take decisions. 

The  Commission  will  continue  to  monitor  market  events.  Some  NCAs  are  launching 
studies  and  reviews  into  their  national  audit  markets  to  gather  more  information  on 
possible  market  weaknesses.  As  some  of  the  issues  identified  in  the  report  may  be  of 
relevance to the Wirecard case, the Commission will discuss with CEAOB what lessons 
need to be learned in light of this case. 

Finally,  the  Commission  has  launched  a  study  to  assess  the  effects  of  the  EU  audit 
legislation on the statutory audit market. The findings of the study and of this report will 
feed  into  an  evaluation  of  the  EU  audit  framework,  to  review  its  effectiveness  in 
improving  transparency,  audit  quality  and  competition  in  the  audit  market,  particularly 
for PIEs. The evaluation will also examine the effects on the audit sector of the economic 
crisis induced by the COVID-19 pandemic. 

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