Presentations DG XV

1

•  Eighth  Company Law Directive Statutory Audit
• REPARIS Workshop
• Vienna, 14 March 2006
• Jean-Philippe Rabine

2
Structure of the presentation

• Directive on Statutory Audit status of adoption
• Presentation of the main features
• Subject Matter and Definitions
• Approval, Registration and Mutual Recognition
• Auditing Standards and Audit reporting
• Quality Assurance
• Auditors liability
• Public Interest Entities
• International Aspects

3
Modernisation of the Eighth Directive

• Directive of 1984 will be replaced
• A comprehensive, principles based new Directive
• Timing
• Commission proposal March 2004
• Council general approach 7 December 2004
• Single reading with the EP 28 September 2005
• Agreement by ECOFIN Council 11 October 2005
• Possible formal adoption Spring 2006
• Transposition by Member States into national
  law 24 months spring 2008

4
Subject Matter and Definitions

• STATUTORY AUDIT REQUIRED BY COMMUNITY LAW
• KEY DEFINITIONS
• Network
• Public Interest Entities
• Non-practitioner
• Key Audit Partner

5
Approval, ownership and registration of statutory
auditors and audit firms

• Approval
• Mutual recognition of statutory auditors between
  Member States (aptitude test)
• Liberalised ownership and management requirements
  for audit firms approved in the EU (Majority and
  Nationality)
• Enhanced public registration of statutory
  auditors and audit firms
• (Electronic, accessible to public, Information
  about shareholders, management, membership of a
  network, name and address of competent
  authorities)

6
Auditing Standards and report

• Adoption of International Standards on Auditing
• Group auditor bears the full responsibility for
  the group audit report
• Rules on audit of components by other auditors
  (review and documentation)
• Audit report to be signed by an individual, not
  by the audit firm

7
External Quality Assurance Systems

• Principles
• Independent from the reviewed auditors (and
  avoid conflicts of interest)
• Stable, secure, and independent funding
• Inspectors sufficient knowledge and experience
  in audit
• Public oversight system has the ultimate
  responsibility
• Scope and conduct
• At least every 6 years (PIE 3 years)
• Scope review based on selected audit files
• Follow up by auditors failure -gt santions
• Report on activities
• Annual report

8
Next steps Auditors liability

• Article 30a of 8th Company Law Directive
  Auditors liability with regard to statutory
  audits and listed companies
• Report from the Commission end of 2006
• 2007 Possible Commission recommendation to the
  Member States

9
Auditors liability Preparatory steps

• Study on the economic impact of the alternative
  liability regimes, the competition in the market
  and the availability of the insurance.
• Dialogue between investors and auditors is also
  essential ? forum to obtain the opinion from
  market experts

10
Public Interest Entities

• Transparency report by audit firm
• (Information inter alia about the audit firms
  practice, turnover, quality assurance systems and
  events, etc.)
• Audit committee or a body performing equivalent
  functions
• Monitor financial reporting process, provision of
  onon audit services, independence, effectiveness
  of internal controls
• Composition (one independent member or disclosure
  of all members)
• Rotation of key audit partners, but rotation of
  audit firms for Member States still allowed

11
International dimension

• Registration of individual auditors and audit
  firms in Member States only if third countrys
  rules on independence and on auditing standards
  equivalent
• Derogation in the case of equivalence of the
  third country public oversight systems
• Access to audit working papers
• Transfer via the national competent authorities
  only
• Adequacy of working arrangements assessed by the
  Commission

12
Further information

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/comm/internal_market/en/company/index.htm