Attention Audit Committees! Are You Set For 2017? (Step 4)

Welcome to part 4 of our 6-part article series about how audit committees ("ACs") can prepare and deal with new legislation. Specifically, the law of 23 July 2016 on the audit profession ("Law") and Regulation (EU) N° 537/2014 ("Regulation") will have an impact on audit committees in terms of their roles and responsibilities, and their relationships with external auditors.

Step 4 - What is the specific role of the AC in terms of non-audit services?

Step 5 - What kind of relationship should the AC maintain with the external auditor?

Step 6 - What should the additional report of the external auditor to the AC include?

In this article, we will discuss the AC's role regarding non-audit services ("NAS"). The new legislation introduces prohibitions on certain NAS as well as fee caps for public interest entities ("PIEs").

Which NAS are prohibited?

The following NAS are prohibited, as per Luxembourg legislation:

The statutory audit firm of the PIE and any member of its network cannot provide prohibited NAS to:

the PIE itself its EU parent undertakings its EU controlled undertakings There are also limited restrictions applicable to controlled undertakings outside the EU. A "threats and safeguards" approach is required, although a limited number of absolute prohibitions still apply.

When will these restrictions apply?

The statutory auditor cannot provide prohibited NAS to the PIE between the beginning of the financial year under audit and the release of the audit report. The restrictions apply to the first financial year starting on or after 17 June 2016. This means that, for a PIE with a 31 December 2016 year-end, the restrictions on NAS would apply from 1 January 2017.

What NAS can be provided?

Those NAS which are not on the list of prohibited services are permitted, subject to the general principles of independence and audit committee approval.

Luxembourg has taken the view that valuation and certain tax services are allowed (e.g. preparation of tax forms, identification of public subsidies, support for tax inspections, calculation of direct and indirect tax and deferred tax, and tax advice)provided (1) that they have no direct effect, or have an immaterial effect, either separately or in aggregate, on the audited...