In January 2013, Dutch legislation prohibited audit firms from providing statutory audit services to public-interest entities (PIEs), which include all listed companies, banks and insurers, for more than eight consecutive years. After eight years, companies had to observe a two-year cooling-off period before resuming statutory audit services. Dutch legislation provided for a transition period until 1 January 2016, after which PIEs had to comply with the mandatory rotation requirements. 1 January 2016 would also be the reference date for determining if an audit firm had reached the limit of eight consecutive years of providing audit services, and when the cooling-off period started.
In addition, in April 2014, the European Parliament and the European Council adopted a regulation regarding the statutory audit of PIEs (the Audit Regulation). The Audit Regulation entered into force on 16 June 2014, but will not become applicable until 17 June 2016. The Audit Regulation provides for the mandatory rotation of audit firms after ten consecutive years and a four-year cooling-off period before resuming statutory audit services. The Audit Regulation also provides for transitional provisions for certain long-term audit engagements which existed when the Audit Regulation entered into force, which was 16 June 2014. The reference period for this is the period between the first financial year covered in the audit engagement letter in which the auditor was first appointed to carry out the PIE’s statutory audits, and the date on which the Audit Regulation entered into force. The European Commission clarified the operation of these transitional provisions in a letter to national supervision authorities in September 2014.
After attempting to bring Dutch legislation on auditor rotation and the cooling-off period in line with the Audit Regulation by extending the maximum permitted audit term to ten years, the Dutch legislation is now being withdrawn altogether. This is expected to take place before 1 January 2016, after which the Audit Regulation will exclusively govern mandatory auditor rotation and the cooling-off period.
Meanwhile, in answer to questions raised in the press and in Parliament as to whether Dutch legislation conflicts with the Audit Regulation, the Dutch Minister of Finance has made clear that:
- the Netherlands will not use available member state options to enact rotation requirements that deviate from the Audit Regulation;
- the European mandatory rotation period of ten years must, in his opinion, be calculated as from 16 June 2014 when the Audit Regulation entered into force, and therefore all PIEs must change their audit firms by 16 June 2024.
The Dutch Minister of Finance appears not to have taken into account the transitional provisions in the Audit Regulation and the interpretation of the European Commission on its operation.
Based on those provisions and on the interpretation, the rotation requirements set out in this timeline would apply to Dutch PIEs that have not yet changed their audit firm in anticipation of the end of the transition period in the Dutch legislation.
Dutch PIEs that have entered into new audit engagements starting on 16 June 2014 and where those audit engagements remain in force on 17 June 2016 can engage the same audit firm until 2024. Dutch PIEs that change their audit firm as of the financial year starting on or after 17 June 2016 will be subject to the maximum retention period of ten years after the start of the audit engagement.