1 International developments on Audit Regulation REPARIS Workshop Vienna, 15 March 2006 Jean-Philippe Rabine

2 This document was prepared solely for the purpose of informing participants to the March 2006 Reparis Forum. The views expressed herein only represent the personal views of the author, and cannot be considered whatsoever as representing those of the European Commission.

3 Structure of the presentation The international dimension in the new Directive: –Overview = effective, balanced, promotes home control+coop –Approval of a foreign natural person –Registration of 3rd country auditors / audit entities –Derogation to registration –Working with 3rd country regulators Concrete examples

4 Overview of the International dimension of the Directive Adoption of International Standards on Auditing Registration of 3rd country individual auditors and audit firms with the Member States –Several features have to be equivalent to the EU –Transparency report Exemption: equivalence and reciprocity Access to audit documents –Principle: transfer via the national competent authorities –Derogation in exceptional cases: direct access

5 International Standards on Auditing EU harmonisation International convergence Conditions: Credibility/quality; generally acceptable; governance of the standard setter; European public good No obligation for the EU to adopt international standards on auditing ISA + and ISA –

6 The international dimension: Public Oversight System One body at State level represents the system (‘point of entry’) EGAOB International forum? Public Interest Oversight Board of IFAC

7 Approval of a 3rd Country natural person A non-EU natural person wishes to become a « statutory auditor »: possible Conditions: –the person has furnished proof that he or she had at home an educational and training background equivalent to the Directive –Aptitude test (laws and regulations) –Reciprocity is offered by the 3rd country

8 Registration of 3rd country auditors / audit entities Scope: foreign companies listed in the EU –Foreign subsidiaries of EU groups out of scope –Individual auditors / audit firms – on a case by case basis Registration not a license to perform statutory audits in the EU Registration => subject to MS oversight No registration => audit has no legal effect / MS Conditions for registration: equivalence –Ownership of audit firm (MS) –Majority in administrative or management body of audit firm (MS) –Education of auditors (MS) –Auditing standards and independence rules (Commission) –Transparency report (MS)

9 Derogation to registration Answer to overlapping/costly regulatory oversight: international co-operation Scope of derogation: registration, oversight Conditions: equivalence / reciprocity

10 Working with 3rd country regulators Transfer of audit documents to the competent authorities of a third country: possible, subject to –Adequacy test (Commission) –Working arrangements (reciprocal): justification, use of info abroad, confidentiality –Transfer via competent authorities –Data protection Only via competent authorities Exceptional cases: direct access with EU auditor

11 Example GermanyUS listed APAKPCAOB US Audit firm US Company Working arrangements ? Registration + Oversight

12 Example Germany German company APAK PCAO B US Audit firm US US subsidiary Working arrangements ? German group auditor Group Audit Group control