Attention audit committees! Are you set for 2017? (Step 3)

in Regulatory/Compliance, 07.03.2017

Following regulation that became effective this year, how should audit committees (“ACs”) be involved in the tender process? Keep reading for part 3 of our 6-part series about how to make sure you’re in good shape with regard to the law of 23 July 2016 on the audit profession and Regulation (EU) N° 537/2014.

Step 3 – How should the AC be involved in the tender process?

In this article, we focus on step 3.

All public interest entities (“PIE”s) have to tender when required – there is no exception to the rule.

When is a tender process required?

This procedure takes place for new appointments of any statutory auditor. In particular, this means:

  • the selection of a new auditor (first time appointments)
  • the re-appointment of an existing auditor at the end of the initial maximum duration period of 10 years

However, as opposed to the appointment of a new auditor, the simple reappointment of an existing auditor does not require the tender process to be carried out.

How should the AC be involved in the tender process?

The AC now has explicit responsibility for recommending a statutory auditor to the supervisory body of the entity. This recommendation must include at least two possible choices for the audit engagement and a justified preference for one of them.

Recommendation of the AC

The AC must ensure that transparent, non-discriminatory selection criteria are used. It must furthermore formally document the various criteria its members considered (e.g., geographical coverage, industry expertise or audit inspection results) in deciding which firms to invite to tender. Invitations to tender should not be restricted. A PIE is free to invite any audit firm to submit a proposal and should not exclude smaller audit firms (a list is to be made public by the CSSF). Some companies will opt to publish a formal request for proposal.

Small and medium-sized enterprises and companies with reduced market capitalisation are not required to apply the selection criteria when conducting their tender process.

Proposal to the general meeting (“GM”) of shareholders

The proposal by the management to the GM for the appointment of statutory auditors or audit firms shall include the recommendations and preference of the AC.

The management’s proposal can differ from the preference of the AC if the following conditions are met:

  • the proposal justifies the reasons for not following the recommendation of the AC; and
  • the auditor recommended by the management has participated in the selection procedure.

What are the practical considerations for ACs?

Questions? Don’t hesitate to get in touch with me or to visit our website.


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