Thursday, 11th January, 2007: The European Commission has today launched a public consultation on its future strategy and priorities on statutory audit in relation to non-EU countries ('third countries'). The Commission is inviting interested parties’ views on how third-country audit firms might be supervised under the Directive; and how the EU might co-operate with third countries.
The Commission hopes that the consultation exercise will assist in finding pragmatic and consistent solutions within the framework of the Directive on Statutory Audit (revised 8th Company Law Directive). Interested parties are invited to submit their contributions to the EU Commission (at [email protected]
) by the 5 March 2007
The revised 8th Company Law Directive requires third-country audit firms to register in each EU Member State where their clients' securities are admitted to trading (Article 45 refers). Preliminary estimates indicate that approximately 220 audit firms auditing issuers from about 63 third countries will be affected by these rules. Whilst the implementation of the Directive is primarily a matter for EU Member States, the Commission wishes to obtain views on action it might take to facilitate the implementation of the Directive and to avoid market fragmentation.
The Directive on Statutory Audit allows for exemptions from registration and empowers the European Commission to decide on equivalence of third-country audit systems (Article 46 refers). If a third-country audit regulatory system is found to be equivalent, EU Member States then have a common ground for assessing third-country audit firms for registration purposes. The Commission’s consultation seeks interested parties’ views on priorities in equivalence assessment of third countries' audit regulation. Interested parties are also invited to comment on possibilities for coordination of registration procedures for third-country audit firms among EU Member States, as well as on a possible role for the European Group of Auditors Oversight Bodies (EGAOB), of which the Irish Auditing & Accounting Supervisory Authority is a member, in such cooperation.
The Directive also empowers the Commission to grant a transitional period for audit firms from third countries that cannot yet benefit from equivalence. Such a measure could be taken to avoid disruptions to European capital markets. In this context, the Commission’s consultation paper seeks views on the transitional use of auditing standards such as US GAAS (United States Generally Accepted Auditing Standards) and ISAs (International Standards on Auditing).
The Directive allows for cooperation with third-country competent authorities on transfer of audit working papers held by EU audit firms to third countries and sets conditions for such cooperation (Article 47). The consultation paper also seeks interested parties' views on the scope for such cooperation and on circumstances under which an audit firm could make an exceptional direct transfer of audit working papers to a third country.
The Commission’s consultation paper can be accessed here.