Study on the Audit Directive and the Audit Regulation

In 2014, the European Union (EU) adopted an important reform of the EU Statutory Audit Market through two legislative instruments: Directive 2014/56/EU amending the first Audit Directive (2006/43/EC) and Audit Regulation (537/2014). The reform had four objectives: enhance transparency for investors; reinforce independence of auditors towards their clients; promote competition in a highly concentrated market dominated by the 'Big Four'; and strengthen pan-EU supervision.

In this context, the European Commission requested an in-depth study to provide data and to analyse the impact of the transposition and implementation of specific provisions of the Audit Directive and Regulation on achieving the reform’s objective. These provisions include assurance and reporting requirements for statutory auditors, mandatory rotation and appointment of auditors, prohibition of certain non-audit services, and caps on fees for non-audit services.

The study shows that the reform effectively increased levels of independence but did not impact competition as intended. The analysis shows that most of the audit reports for public interest entities (PIEs) are led by members of the Big Four. The audit reports do not contain information about corporate governance practices that goes beyond what is required at national and EU level. Additionally, there is a cost disparity in audit fees between sectors.