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
Objectives: reinforce and harmonise the quality of statutory audit in the EU and facilitate the cooperation between Member States and with third countries to reinforce the confidence in the control

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
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)
Appointment: general meeting of shareholders
Dismissal: valid reasons, communicated to the oversight body
Register:

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
ISA:
généralement admises sur le plan international et élaborées dans le respect des procédures, des principes de supervision publique et de transparence
Contribuent au niveau élevé de crédibilité et de qualité des comptes annuels
Répondent à l’intérêt public européen

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 -> santions
Report on activities:
Annual report
Sanctions: published, include retrait d’agrément
Public oversight of: approval, registration, ethics standards, continuous education, quality assurance, investigations, sanctions
Transparency (work program, annual report)
Cooperation of Public Oversight: Investigation and exchange of information
Participation in investigations in another Member State

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. Auditor’s 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 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
Audit committee: Commission recommendation on role of non executive directors
Exemption: OPCVM

11. International dimension
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
The Directive fosters the principles of equivalence and reciprocity.
Oversight, quality assurance, investigations and sanctions must be equivalent to EU

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