In July 2012 the European Parliament released its ‘Appraisal on the Impact Assessment’
carried out by the Commission Staff regarding the impact of the various legislative scenarios with different intensities. This appraisal was prepared in order to help the Parliament’s Legal Affairs Committee (JURI) in their consideration of the proposed legislation and to assess whether the Impact Assessment was carried out according to the Impact Assessment Guidelines published by the Commission (Ballon & Georgescu, 2012).
In its Resolution of 13th September 2011, the Parliament recognised the importance of auditor independence and the need to strengthen the audit system, and therefore welcomed the Commission’s Green Paper. They stressed, however, the importance of a
“wide-ranging and in-depth impact assessment” (European Parliament Committee on Legal Affairs, 2011). Various concerns are identified in the Appraisal.
The first area of concern are the drivers that the Commission believes justify further legislation. The Commission presents two specific drivers; a deficient audit quality that has contributed to the financial crisis and a lack of competition in the audit market due to the prominence of the four largest audit firms37. The Appraisal begins by questioning the relationship between audit quality and the financial crisis, claiming that the Commission has not presented enough evidence to support the theory that it was a lack of audit quality that caused the financial crisis. The Parliament also finds that the Commission needs to explain more convincingly how the concentration in the audit market is affecting market competition.
The Appraisal finds that the policy options presented in the Impact Assessment are clear and well-structured, but is concerned that in certain cases the preferred options are costly and opposed by the majority of stakeholders. In particular, that there is little evidence to support the concepts of Mandatory Rotation and the provision of Non- Audit Services and that it is therefore doubtful that the Commission has presented a range of options proportionate to the identified problem.
The Appraisal concludes with a summary to the identified weaknesses of the Impact Assessment:
37 Known as the ‘big four’ – Deloitte Touche Tohmatsu, Ernest & Young, KPMG, PwC.
Without making judgement on the substance or the value of the policy proposals tabled by the Commission, from a methodological point of view, the Impact Assessment fails in part to provide solid evidence for certain claimed problems. Both these and the underlying drivers for the proposed policy change should be more clearly demonstrated. The Impact Assessment should also provide a more solid justification for some of the policy options chosen, stronger justification for why certain other options have been rejected, and a more detailed assessment of the likely costs and benefits of the specific measures envisaged, if that is possible (Ballon & Georgescu, 2012).
4 Methodology
The choice of method of research is very important and must be made deliberately with regard for the circumstances and objectives of the study (Arksey & Knight, 1999). This research study is based on the analysis of two types of data; existing data in the form of responses to the questions asked by the Green Paper of 2010, and interviews conducted subsequent to the analysis of the existing data. In that sense, a hypothesis was built on the results of the initial analysis. Interviews were subsequently used in order to support or dispute that hypothesis and to give further insight into the discoveries.
The responses to the Green Paper were downloaded from the EU website in September 201138. Of the 688 responses, sample sizes from the different categories of respondents were calculated, and the chosen samples analysed through the process of
‘content analysis’. Content analysis can be described as “a research technique for making replicable and valid inferences from texts (or other meaningful matter) to the contexts of their use” (Krippendorff, 2004). This analysis was performed with the use of a series of charts, coding the information and arriving at a somewhat quantified result, in order to establish the hypothesis and to display the findings in graphic form.
The overall approach of this research is however qualitative. Qualitative methods give the researcher the opportunity to explore the results, and to provide a greater understanding of the issues (Silverman, 2001). The responses were therefore also examined qualitatively in order to gain insight into the attitudes of the respondents and to the reasons behind their opinions.
In making the decision to conduct interviews, the concept of ‘data triangulation’ was taken into consideration. The term “triangulation” was initially used in surveying, military strategy and navigation to describe a technique whereby two known landmarks or reference points were used to define the position of a third (Arksey & Knight, 1999).
Webb et al. (Webb, Campbell, Schwartz, & Sechrest, 1966) said “It is through
38 Downloaded from http://ec.europa.eu/internal_market/auditing/reform/index_en.htm#new
triangulation of data procured from different measurement classes that the investigator can most effectively strip of plausibility rival explanations for his comparisons.” Data Triangulation can be used in its role of testing the truthfulness of a hypothesis, although it does not rule out the possibility that the additional results may not support the initial findings, a situation referred to as ‘diversity in findings’ (Arksey & Knight, 1999).
A series of 6 interviews were conducted in August and September 2012. Five of these interviews were carried out in Icelandic and one in English. They were recorded in digital form and transcribed word for word (translated into English in the case of the Icelandic Interviews) in order that the text could be analysed thoroughly, the content coded and the inferences drawn on the presented issues. The interviews were semi- structured, focusing the discussion on the relevant issues, and ensuring the efficiency in the triangulation process.
Content analysis is a scientific tool, but is only effective if the techniques involved are reliable (Krippendorff, 2004). The responses which were analysed are available from the European Union website and the coding of the analysis of the interviews is demonstrated in the appendices. The researcher believes the data used and the analytical processes performed have ensured a robust research project.