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« Eighth » Company Law Directive Statutory Audit REPARIS Workshop Vienna, 14 March 2006 Jean-Philippe Rabine. Structure of the presentation. Directive on Statutory Audit: status of adoption Presentation of the main features Subject Matter and Definitions

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Structure of the presentation
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


Modernisation of the eighth directive
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


Subject matter and definitions
Subject Matter and Definitions

  • STATUTORY AUDIT REQUIRED BY COMMUNITY LAW

  • KEY DEFINITIONS:

    • Network

    • Public Interest Entities

    • Non-practitioner

    • Key Audit Partner


Approval ownership and registration of statutory auditors and audit firms
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)


Auditing Standards and report and audit firms

  • 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


External Quality Assurance Systems and audit firms

  • 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 -> santions

  • Report on activities:

    • Annual report


Next steps auditors liability
Next steps: Auditors’ liability and audit firms

  • 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


Auditor s liability preparatory steps
Auditor’s liability: Preparatory steps and audit firms

  • 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


Public Interest Entities and audit firms

  • Transparency report by audit firm

    (Information inter alia about the audit firm’s 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


International dimension and audit firms

  • Registration of individual auditors and audit firms in Member States only if third country’s 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


Further information and audit firms

Visit us!

DG Markt website:

http://europa.eu.int/comm/internal_market/en/company/index.htm


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