New criteria for verifying the independence of statutory auditors

published on 24 March 2021 | reading time approx. 2 minutes

The entity CNDCEC, with the publication of the document “Norme di comportamento del Collegio sindacale di società non quotate” (Rules of conduct for the Board of Statutory Auditors of non-listed companies), has introduced as of 1 January 2021 new criteria for verifying the independence of the non-supervisor statutory auditor in cases where the statutory auditor (below only auditor) and the company's consultant belong to the same associated firm or the same company among professionals.

Rule 1.4 of the aforementioned document sets out not only the regulatory references of the Civil Code and the Code of Conduct, but also the reference principles and criteria to be applied in order to verify and guarantee the independence of the auditor.

In general, when a risk assessment analysis of the auditor’s incompatibility is carried out, the verification of a concrete threat to independence must be analyzed on a case-by-case basis. A threat can be considered to be concrete when it is well-founded, current, not probable, and manifests itself in a stable manner, namely, not temporarily or occasionally. It should also be noted that the collegiate nature of the body (where present) already constitutes an adequate safeguard against occasional and temporary situations which could compromise the independence of the individual auditor but not that one of the Board of Statutory Auditors.

Going further into more practical aspects of the audit, the document detects some common situations which represent a potential threat and could compromise independence. In particular, focusing on cases where the auditor and consultant belong to the same associated firm or the same company among professionals, during the analysis of the risk assessment, it will be necessary to take into account the following among the measures to preserve independence:

the identification and periodic monitoring of the relevant relationships and relations which are directly or indirectly entertained with the company or the group companies by the auditor himself and by another professional belonging to the same associated firm or the same company among professionals;
the occasional services assigned to a member of the Board of Statutory Auditors with a consequent risk of self-review (because they are carried out directly by the auditor or by a person belonging to the same associated firm or the same company among professionals), where the supervisory activity relating to the service must be exercised by the members of the Board of Statutory Auditors who are not involved in the situation;
finally, in the case of a sole auditor, in addition to continuous professional assistance and consultancy, all occasional consultancies should be avoided which may lead to a review of the service itself performed as a consultant or in any case performed through one's professional firm. Indeed, in this case, situations could arise in which there would be no acceptable measures to safeguard independence other than resignation.

In conclusion, it should be kept in mind that not all circumstances in which auditors and consultants belong to the same professional firm or company represent a threat to independence. In fact, the CNDCEC itself states that if the relationship between the two persons is limited to the mere sharing of costs during the performance of the professional activity (e.g. by sharing only the same facility) then this does not lead to situations of incompatibility.