European Commission DG XV/D rue de la Loi B-1049, Brussels Belgium. 15 December Dear Sirs

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1 European Commission DG XV/D rue de la Loi B-1049, Brussels Belgium 15 December 2011 Dear Sirs Consultation on European Commission proposals for new rules on auditing - COM (2011) 778 and COM (2011) 779/3 Thank you for the opportunity to comment on the above proposals. The European Commission s proposed new standards on auditing adopted on 30 November 2011 in the form of proposals to amend the Directive on Statutory Audit (2006/43/EC) and a proposal for a new regulation on specific requirements for statutory audits of particular public interest (PIE) are very far-reaching proposals. Not only do they affect the accounting profession, but also the EU industry as a whole. FSR danske revisorer Kronprinsessegade 8 DK København K Telefon fsr@fsr.dk CVR Danske Bank Reg Konto nr With the presented proposal, the European Commission has not complied much with the many critical responses submitted by the European business community following the publication of the Green Paper in October Therefore, the positive measures of the now-submitted proposal are unfortunately overshadowed by the large parts of the proposal, which we cannot support. The main items of the proposal have no support among the industry or among business enterprises. These include the proposals for compulsory rotation of audit activities and restricting the possibility that commercial companies can receive counselling and other non-audit services by auditors. Also the other stakeholders, including financial statement users, academics, authorities, etc., are in several respects critical of the proposal, as are the elected representatives of the European Parliament. All proposals are intended as tools to enhance audit quality, but it is our assessment that they have the opposite effect. Also, the proposals will strain corporate economy at a time when business in Europe is already affected by the financial crisis. The presented analysis "Impact Assessment" prepared by the Commissioner to be supporting the proposals, does not take fully into consideration the impact of the proposals and never mentions alternative options. Besides, it also contains factual errors and unsubstantiated claims.

2 Therefore, the Commission has decided to present a proposal that will restrict the opportunities of business enterprises to choose audit firms and consultants and will also increase the cost of auditing. If the proposal is implemented, it will involve quality deterioration of the framework for conducting audits, simply because the Commission wants to increase the perceived independence. Side 2 We can not accept as a premise that the financial crisis could have been avoided if the currently proposed rules were already in place. The actual matter is much more complicated than that. Basically, we believe that the current framework and industry's high level of expertise ensure a high quality of audit services, including to companies of particular public interest. Consequently, it is very important for FSR - Danish Auditors to work to improve the quality further, and to diminish the expectation gap. The very short consultation period of the far-reaching proposal from the European Commission implies that FSR - Danish Auditors have chosen to comment on the parts of the proposal, which we believe to be the most significant for the future quality of the audit, which is why our answer does not constitute a complete answer to all elements of the submitted proposal. In the near future, we will further analyze the content and possible effects of the proposal to enter into dialogue with the legislature about its content and implications. Our position on the proposal can be summarized as follows: FSR - Danish Auditors are not in favour of: - introducing rules on mandatory rotation of audit firms - introducing the kind of audit firms that only provide audit and a few other assurance services, and/or limits the opportunities of businesses to purchase non-audit services by audit firms to be reduced further than legislation and ethical guidelines currently require - putting audit services into compulsorily tendering - implementing new rules on auditor communications with management and the external community if such rules provide ambiguous communication or unclear responsibilities.

3 - the EU making a solitary approach to a number of areas where international cooperation and the use of international rules and standards are the way forward. Side 3 FSR - Danish Auditors would like to support initiatives which: - Increase the level of quality even further. Consequently, we support the introduction of international standards in terms of the ISAs, so that a consistent level of quality is guaranteed. - Ensure that audit committees will have a greater role and that more decisions on corporate use of auditor and auditor s services are entrusted to them. - Improve cooperation between the authorities, but also between authorities and auditors in the form of mutual information exchange. - Can lead to the introduction of a new declaration standard that can cover the need for assurance among users of financial statements of Class B companies under the Danish Financial Statements Act. Moreover, we note that the Commission's proposal does not include rules on the introduction of international ethical guidelines, which would ensure a uniform and thoroughly prepared basis for auditor independence. Furthermore, there is no proposal to introduce limited liability - which could otherwise be an instrument that can provide a better basis for a diversified market for audit services to PIE companies. Both of these proposals should be considered further when reviewing the proposal. Basis for assessing the proposal We have assessed the proposal along the following lines, which are useful in order to identify constructive changes and to avoid proposals which may have adverse effects on the quality of the audit and the situation. We support initiatives that meet the following criteria: - Maintain or improve audit quality. - Enhance the value of the audit for the users thereof. - Enhance the credibility of corporate reporting to the public. - Maintain or improve the collaboration between auditors and management, board and audit committee.

4 - Auditor's reporting to the public and to others must be sufficiently uniform to support users' ability to compare the underlying economic realities of different companies. - The auditor's report may provide further insight from the audit, but should not be a source of factual data and information about firms reported on by the auditor. This information should instead be found in e.g. the accounts. - Ensure the proper functioning of a competitive audit market which will continue also to support high quality. - Avoid burdening businesses with unnecessary administrative and financial burdens. Side 4 In the autumn of 2010, Commissioner of the Internal Market, Michel Barnier, issued a discussion paper in the form of a Green Paper on a future audit policy. With this Green Paper, the Commission strongly underlined the value of the auditor's statement and credible and transparent financial statements, which form the very foundation of financial stability and healthy companies. We welcome the debate on the auditor's role, and we support initiatives that can improve quality and develop the statutory audit and our other services, thus creating a continuous improvement of the profession s services. We acknowledge the necessity that the debate about the role of the auditor and auditors' statements will be thorough and unbiased. There is a gap between what the general public immediately expects the auditor to do, and the work that the auditor actually performs in accordance with the applicable requirements. This gap must be bridged. It is the opinion of FSR - Danish Auditors that all initiatives should contribute to improve trust, credibility and transparency in the market in order to promote robust auditing. It should be stated that the audit profession is aware of our legislative prerogatives, and thus our status as a regulated profession. We are in favour of the fact that, at European level, a correction shall be made to strengthen the profession, the quality, and the internal market. In principle, we take no position on how much regulation is needed, but it is important to us that the right kind of adjustment is made. Therefore, we see it as our task to contribute to the practical effects of the proposed significant changes to be thoroughly assessed in relation to whether the desired objectives are achieved.

5 Auditor s independence is highly important and is the foundation for auditor s work as the representative of the general public. High quality requires the auditor to look objectively at the audited entity and is therefore subject to extensive regulation by legislators and profession. High quality also requires a high degree of professionalism. Training to be an approved accountant in Denmark is one of the longest and most demanding courses in Europe. Side 5 Auditors are not allowed to undertake tasks they are not qualified for. Therefore in practice, it requires experience and specialized knowledge of the area before an auditor can undertake assurance engagements for companies in the financial sector. In this context we would like to look at whether through the mandatory training it is possible to create specific courses aimed at accountants servicing the financial sector. In the following, we will first focus on which parts of the Commission's overall proposal that will increase the costs and threaten the quality and hence do not work as intended. Next, we will review the proposals to which we can agree that under certain conditions work can continue. Proposals threatening the quality of audit In 2006 the Council of Ministers adopted a new 8 th directive on auditing that was implemented in national law two years after. The Directive has thus only been in force for a short time, and the framework of the directive has not been filled completely. Many jurisdictions have been slow to adopt the rules or have not introduced them as consistently as we have in Denmark. We recommend awaiting the effect of the 8 th Directive before acting as dramatically as the Commission proposes. Thus, the Directive fills so many of the purposes which the Commission addresses in its proposal. Large parts of the European Commission's proposal focus on regulating the market for the profession s services through a regulation of the profession. With this proposal you go strongly into the market in various ways without the assurance that you can achieve the desired effects. The proposed rules will not result in increased or intensified competition, but will lead to a lowering of quality. At the same time, we fear that the higher standards and stricter regulations on PIE audits will result in an increased penetration barrier for audit firms which want to have clients among companies of particular public interest. Regulating the market through regulation of the profession's framework on one hand does not give a response to the challenges described by the Commissioner

6 in the Green Paper of October 2010, and on the other hand the starting point is wrong in a number of areas including: Side 6 That there is a lack of competition in the industry That there is something that prevents small and medium-sized audit firms to join together into larger networks if they want to compete on the audit of large companies That there is no continuous supply of audit assignments and careful ongoing assessment of audit firms' capabilities and price, although the companies - to outsiders - choose to continue with the same audit firm That there is no considerable focus from auditors, companies and authorities in relation to ensuring auditor independence and restrictions on what services auditors can provide to agencies of public importance, which are being audited That there has not been established any correlation between cases where the auditor provides non-audit services to businesses reviewed by the auditor and cases where the auditor may have made mistakes. The Commission's assumptions have led to the proposal for mandatory rotation of audit firms and the limitation of opportunities for companies to purchase nonaudit services, incidentally without assurance that the market reacts as desired. We would like to refer to an analysis of the consultation responses received on the Green Paper prepared by academics from the Goethe University in Frankfurt am Main and published in November 2011 which shows that the responses submitted by both public authorities, users of financial statements (e.g. shareholder associations) and academics form a majority against the two key market interventions proposed by the EU Commission, namely the prohibition on providing a range of other services in addition to audit services and the rules on compulsory rotation of audit firm. Forced rotation reduces the quality and increases costs to businesses We support the current framework for rotation, which means that the responsible signatory partner cannot be re-elected for more than a certain number of years. The model ensures that matters will be looked upon with new eyes at agreed intervals. But the European Commission is proposing that the mandatory rotation now shall apply to the audit firm. Forced changes of audit firm in order to achieve greater competition in the audit market will inevitably lead to loss of firm-specific and industry-specific knowledge gained among auditor team

7 members, which does not enhance the quality of the audit. In addition, it imposes unnecessary costs on businesses when the entire audit team will have to be replaced. Italy is the only country in Europe currently requiring firm rotation. It has been documented that a higher quality cannot be obtained within the first two years after the change of audit firm. This follows from a report from the Bocconi University in 2005 dealing with the Italian situation. Side 7 In addition, the forced company rotation will involve a number of drawbacks, for example: Companies' freedom of choice to choose the audit firm, which their board and shareholders find best for the job, will be limited A forced change of audit firm is not necessarily in the interest of the company and the owners if the firm they already use has specific and necessary skills Change of audit firm increases costs and drains on resources of both auditors and companies and ends up being a burden to the business Businesses will be limited in the choice of an audit firm by only being able to choose the same auditor for a minimum of 2 years and maximum 6 years, or maybe 9 years when opting for two audit firms Extension of audit agreements can only happen once Companies cannot choose the same audit firm for a period of 4 years. The Goethe University study which is based on the received responses shows that 71 percent of the respondents (accountants not included) are against mandatory corporate rotation. The US Government Accountability Office concluded that mandatory firm rotation is not the most effective method to ensure auditor independence or quality of the performed audit, that the initial costs could rise by up to 20 percent compared to subsequent years, and that these costs are likely to significantly exceed the benefits of such an arrangement. In a study from YouGoVStone, 70 percent of the respondents (chairmen of audit committees and CFOs) responded that they are against mandatory firm rotation because it increases costs without creating benefits.

8 Prohibition of non-audit services: Knowledge is lost - for businesses as well as auditors To promote independence, the European Commission wants to limit industry s opportunity to get other services than audit from audit firms. The limitation is done through several of the proposed rules. Side 8 We are concerned about provisions aimed at regulating specific audit firms, as is the case when the Commission proposes that the largest companies shall split into either clean audit firms or companies dealing with the associated consultancy, and we are worried about the deterioration of audit quality which we are likely to get if audit firms are prevented from offering other services than auditing. The market situation is largely a result of the conscious choice of PIE businesses, because many companies need to choose a major accounting firm with diversified professional skills and access to international networks. Basically, it is also important that the audit firms are able to match the ever-growing concentration and globalization of the largest businesses. We are therefore in line with PCAOB Chairman Jim Doty, who in a speech in May this year said: But initiatives to shrink the global firms would likely further weaken their ability to audit the large, multi-national companies that may themselves be systemically important. The global audit firm is not too big to fail: it is too important to leave unregulated. To protect investors, governments should regulate such firms, not cripple them. Through the work of providing advice and other services, the auditor and the audit firm obtain a general competence as well as a specific knowledge of the individual company. Without these skills, the audit is weakened. It is for example an advantage that an audit firm has access to knowledge on joint taxation and transfer pricing, where these areas should be audited. The expertise is not achieved if the audit firm is not allowed to provide advice of any kind. The Goethe University study indicates that 70 percent of the respondents (accountants not included) are against a ban on non-audit services with reference to the skills and knowledge benefits obtained when waiving a ban. The UK regulator - The Audit Inspection Unit - wrote in their annual report that:

9 the appropriate use by firms of internal or external experts in more complex audit areas contributes to audit quality. Side 9 Currently, the accountants are subject to a number of requirements for independence set out in the Danish Act on Approved Auditors and Audit Firms, the order on independence, and the ethical guidelines followed by the industry, as well as additional internal regulations of the accounting firms who audit PIE companies. There is a mandatory internal review before the report is issued, and there is public quality control by the Danish Supervisory Authority on Auditing and the institute of inquiry, which was introduced in There are no examples of orders from the Accounting Practices Board, where an auditor is convicted of having performed an inferior audit as a result of the auditor having provided services other than auditing. The authority to advise on for example accounting rules, internal controls, etc. is not found in practice outside the audit profession. In a study from YouGoVStone 77 percent of the respondents (chairmen of audit committees and CFOs) responded that they believe that there are sufficient safeguards to ensure auditor independence. We do not believe that there is a factual basis for prohibiting audit firms to provide for example tax advice to an assurance client. However, we are surprised that the Commission has chosen to allow the auditor to conduct recruitment - including top management - in PIE companies. This particular service was specifically prohibited by Danish law at the implementation of the 8th Directive. The implementation of financial IT systems is also mentioned as a possible additional benefit under the draft. All other extra services are prohibited. If we adopt a traditional threat assessment, it seems that such services are far more problematic and create less value for audit quality than for instance tax advice in connection with transfer pricing rules or joint taxation. When the auditor provides advice on tax, financial control, internal controls, accounting rules, etc., it strengthens the business insight and hence the audit, just as it reinforces the basic accounting quality. The Commission proposes that the audit firm should not provide other assurance services than audit to an audit client for an amount that is higher than the equivalent of 10 percent of the fee for the audit engagement. We do not

10 understand this proposed 10 percent limit for adjacent services, because when the auditor offers adjacent services in the form of assurance engagements, the auditor is subject to independence requirements, just as he is when he is auditing. Therefore, it is impossible that such services may constitute a threat to auditor s independence. Side 10 There is no demonstrated correlation between the auditor's integrity and independence and extent of non-audit services. With these proposals, the European Commission therefore merely regulates independence in appearance and not such independence from what an informed third party would conclude, and this gives rise to very significant and disproportionately dramatic consequences. Companies should choose their advisor The proposal implies that companies can no longer choose the auditor. This will incur significant costs for businesses, which will no longer benefit from the auditor's competence and insight. Knowledge, which is essential for businesses especially in the middle of an economically turbulent period. The consequence will also be a reduced audit quality when audit firms through the implementation of the proposals are no longer able to attract and retain key specialists who can support audit quality under the same high level of independence and quality requirements which audit firms must observe. When the audit firm provides advice, it benefits the audit quality in a number of ways: When the firm can offer advice on specialist areas such as tax and internal controls, it attracts or develops an expertise and special knowledge, which can be important for the audit team to draw on in order to gain additional and important knowledge about the customer relationship. The use of internal specialists is important for complex areas where common experience and competence of the auditor is not sufficient. It can thus make the audit more efficient both in terms of resource consumption and in relation to increased quality. Internal specialists must follow the quality and independence requirements also to be met by the auditors, and thus per definition

11 the specialists meet a number of high ethical and professional requirements. Side 11 If to a significant extent one wants to use external consultants, those consultants should also demonstrate that they meet the independence and competence requirements in the same way as the auditor, which may increase the price of the audit. Enterprises themselves should, within a clear framework, assess whether their auditors are the best to deliver permissible non-audit services which do not jeopardize the auditor's independence. To prohibit non-audit services entirely or limit them so radically and randomly, as proposed by the European Commission, has very significant and unfortunate consequences. The use of internal and external specialists in relation to more complex audit areas increases the audit quality and ensures that companies can cost effectively take advantage of the auditor's skills within a framework that ensures continued independence. The selected audit firm has a thorough knowledge of the audit client, and this knowledge is a great advantage for the company when the need for counselling arises, for example in terms of advice on joint taxation or transfer pricing in an international company. The fact that the consultant already has an understanding of the business model and insight into the company's financial circumstances results in consultancy of higher quality and faster problem solving. We support the audit committee s role and function of assessing the auditor s independence, including what kinds of non-audit services the company's auditor can and should provide. Restrictions may lead to less competition The proposed tightening measures, including disclosure requirements, will make it more difficult and less attractive to meet the requirements needed for an audit firm in order to audit PIE companies. Proposals for firm rotation and proposals for restrictions on the possibility of providing non-audit services contribute to build a larger penetration barrier. An audit firm that wishes to audit a company of special public interest, must both meet several additional requirements, and at the same time develop a significant technical and business-specific capacity. But after a short time the company must surrender the client due to rotation requirements, and the audit company is prevented from using the capacity and understanding of the customer relationship to provide advice. The overall

12 proposal will only marginally increase competition, while business costs and choice are affected in a very negative way. Side 12 On an overall basis, the proposals intended to increase competition and quality will not lead to achieving the desired objectives. Practitioners should not be excluded In Denmark, the audit profession s own association has relatively few powers, which is why proposals to restrict these will not have such a profound meaning for us as it will get anywhere else. But if the proposal leads to the elimination of practicing auditors opportunity to participate in all control, monitoring and sanctioning bodies, it will break with Danish tradition and change the basic conditions for a profession and will in practice lead to a lack of knowledge about how the audit work takes place in reality. For example, it is relevant that an inspection can assess whether the auditor has scaled the requirements to implement an audit and when auditing for instance medium-sized businesses, that there are people in supervision, who have extensive and practical experience in interpreting the requirements for an audit. Proposals from the Commission to promote quality There are a number of initiatives in the submitted proposal which we can support. Many of these initiatives can be implemented quickly and efficiently, while others should only be implemented taking into account that Europe cannot stand alone, but should participate in international efforts to get the best result. International standards (ISAs) improve quality and support independence International standards are a prerequisite for cooperation on quality. The association supports the Commission s proposal that the audit profession uses the international auditing standards. Audit is currently based on a common methodology used internationally, based on international standards for auditing, ISAs, which are issued by IFAC - International Federation of Accountants. It is an advantage for the users that the auditor's services have the same high quality, whether it is an auditor in the EU or in Japan, who has carried out the work. It provides the users with an assurance that the auditor's statement is based on similar actions when they use an auditor who uses the IFAC standards. It is

13 therefore recommended that the ISAs will be binding throughout the EU without any special modifications or adjustments. FSR - Danish Auditors also believes that the ISAs should apply to all approved auditors audit services and not only for audits of companies of particular public interest. Side 13 Common standards in Europe are a precondition for a common understanding of what actions the auditor should perform and what the audit conceptual framework contains, and thus help to reduce the expectation gap. Common rules are also a prerequisite that it makes sense to increase cooperation on quality control. The current Directive allows for the standards to be introduced and since several rounds of consultation clearly shows a broad support for this step, the possibility should be used soon and not wait for a long decision process. We also propose to introduce a special declaration standard for the SME segment, see page 14. The auditor's communication with management FSR - Danish Auditors welcomes that the auditor declares himself with other than financial history. We agree that the auditors' understanding and knowledge must be put better and more in play. It can be done if the auditor undertakes new and additional tasks that require audit, review or another form of verification by the independent audit, for example in relation to management's annual report, information on corporate social responsibility (CSR), corporate governance or risk management. Such tasks must, however, be solved on the basis of a precise regulatory framework, so that the auditor s statements meet the customers and the broader public's expectations. FSR - Danish Auditors recommends that the Commissioner initiates a work that maps out what additional information may contribute to increased knowledge about the company and its financial situation. Against this background it should be identified which of these disclosures the auditor may ascertain and declare. Together with stakeholders, we should investigate the possibility of reference frames, so that the auditor can safely declare himself about something else than historical financial information. Strengthened audit committees is a good idea The implementation of the 8th directive gave us a statutory provision on audit committees. We support the European Commission's proposal to strengthen the audit committees. The committees are important when it comes to ensuring auditor independence in relation to the execution of specific additional services.

14 Audit committees have only existed for a few years, and we therefore find it natural that this measure is given time to work, and that it should be considered how to stimulate the dissemination of "best practice" for audit committees - both in relation to the appointment of auditor, ongoing dialogue about the audit process and reporting, and in relation to the provision of additional services. We therefore believe that it should be the audit committee's job to decide what additional services the auditor will provide, rather than prohibiting non-audit services. Side 14 It should also be the audit committee's task to determine whether audit services shall be tendered, rather than introducing rules on compulsory tendering. The Audit Committee can usefully be asked to talk about some of the factors that can expand society's knowledge about the company. It could, for example, be about matters concerning the internal controls or the company s risk management. This brings the work of audit committees within the conceptual framework for corporate governance. And within such a framework it will be possible for the auditor to express an opinion on the Committee work. Opening the introduction of new declaration standard The Commission proposes in the draft modifying the 8th Directive the introduction of a special "limited review" which can be used by the SME segment, instead of auditing standards. FSR - Danish Auditors has prepared a proposal for such a standard, an extended analysis, based on the IFAC standard on review combined with a number of additional audit procedures, and thus fitting the standard into the recognized framework. By requiring such a specific standard for the SMEs we ensure a review of accounts of SMEs and a statement about the outcome of this review by auditors. Also, such a standard will include a better regulation and administrative relief for small businesses. We are pleased to

15 provide a presentation of such a product that shows a way to immediately ensure transparency and administrative reductions in the order of 130 million DKK. Side 15 Auditor's statement FSR - Danish Auditors supports initiatives that lead to the declaration becoming easier to understand and more communicative. We are therefore pleased that we are actively working to build a better statement, but a number of assumptions must be in place for a good result to be achieved. We suggest that the auditor's statement is expanded to cover more topics and be more informative. We are, however, sceptical of the value of the Commission's attempt to specifically define the contents of an audit report. The European Commission proposal for the content of the auditor's report does not contribute to clarity, but will result in long and unclear audit reports that users will not understand. We would like to help to improve the existing audit report design, so that it becomes easier for the reader to understand. The existing report shall be able to maintain its clear user value, namely that it is clear whether there is a blank endorsement, or whether there is additional information or reservations - an endorsement that provides clarity and comparability from company to company. Today it appears from the endorsement whether the reader must look at the financial statement with a green, yellow or red light. There is a green light for reading accounts when there is a blank endorsement. Yellow light, when there is additional information, and a red light if there are reservations. If the report must contain long, individual descriptions, you risk losing the clarity that exists today. We would like to stress that the endorsement in itself does not form a basis for a decision to allocate resources to the audited company. A decision to make an investment in, for example, a listed company may not be based on consideration of a blank endorsement, but must be made on the basis of an analysis of the accounts and the annual report. We are of the opinion that the statement should continue to build on the principle that statements should be consistent and formulated, since it eliminates doubt and gives the best understanding. The current audit report is the result of a longstanding development of standards based on a dialogue with the users. The

16 development and dialogue must continue, so that we can continue to get better communication between auditors and users. Side 16 We are worried about a break with the prevailing principle that the company itself is responsible for reporting on its activities and relationships and the development thereof. If the auditor is assigned with a separate requirement for reporting of actual facts regarding the audited entity, we risk raising doubt on what are management s reporting responsibilities, and what are auditor s. Clarity for users on both liability and information value is weakened thereby. Work to develop a new endorsement should not be a matter for the EU alone, but should take place at the international level, and the endorsement should reflect the standards on which the audit is based. In this regard, the IAASB (the international auditor association) in the spring of 2011 issued a consultation paper on auditor s reporting precisely to reflect improvements based on user input and in a reflected light. We therefore encourage that the EU initiatives are coordinated with other initiatives so that we can get durable and solid solutions. Audit Book: Communications to Management The audit book is a known and proven tool in Denmark. The audit book communicates information on both external and internal auditors' work, if any, including information on specific risk areas and other financial analyses to the company's board and audit committee. In Germany, the auditor also uses an audit report as a means of communication. Moreover, there are rules on auditor communication to the company s chief executives in ISA 260. We can support the European Commission's proposal to introduce a so-called internal audit report, while we encourage a discussion of the details with the stakeholders. However, it is a prerequisite for the effect of the internal audit report that it is not presented to the Annual General Meeting, as proposed by the Audit Committee, because this may lead to a significantly weakening of its information value. This occurs because the auditor must adjust the reporting so that it might be read and understood by a wider receiver circle, which have different assumptions and background to understand the auditor's detailed and confidential report on matters of importance for the Board's position to the accounts.

17 Cooperation between authorities - and between the auditor and the authorities An improved cooperation between national supervisory bodies can help to ensure consistent quality and audit policy. Side 17 The audit profession is also interested in expanding the cooperation and mutual exchange of information with authorities such as financial monitoring bodies. It would, for example, further promote the audit quality if financial supervisors at an early stage will inform the audit of amended guidelines. Summary FSR - Danish Auditors welcomes the European Commission s wish to debate on the auditor's role. We also welcome a number of specific proposals suggested by the Commission, including the introduction of the ISAs. Several of the proposals - especially in the proposed regulation - do not, however, lead to the desired results in the market for audit services. This applies to proposals to restrict the option of providing non-audit services and the proposal for compulsory rotation of audit firm. The proposals increase the costs of doing business and are a threat to quality. Therefore, we are critical of the overall proposal, which is very extensive, and if implemented in its present form will work against the Commission's intentions. There is therefore a need for more analysis of the implications and impact. We have for years maintained a tradition of entering into a professional collaboration with regulators, both nationally and at European and international level to discuss opportunities for improvement in rules and regulation of our profession. In this case, however, we do not find that reasonable consideration has been given to the comments that were received through the many critical responses. ---oo0oo--- FSR - Danish Auditors would like to enter into a dialogue with the legislature on the submitted proposals, with the goal to increase the quality of audit performance and reduce the expectation gap. Regulation and the Directive should be formulated in a form that supports both a functioning and competitive audit market and a high quality audit and does not result in significant increased costs and reduced freedom of choice for businesses in Europe.

18 Yours sincerely Side 18 Morten S. Renge President Charlotte Jepsen Chief Executive Officer