2. Slide 1 The 8th Company Law Directive on Statutory Audit: Conditions for entry into the profession of auditing, mutual recognition and free movement of firms The Advanced Program in Accounting and Auditing Regulation Road to Europe – Program of Accounting Reform and Institutional Strengthening Brussels 20 September 2005 Anne-Françoise Mélot Policy Officer

3. Slide 2 Structure of the presentation 1.Background: Modernisation of the 8th Company Law Directive 2.Conditions for approval 1. Statutory auditors 2. Audit firms 3. Mutual recognition between Member States 3.Public register 4.Relation with third countries

4. Slide 3 1.Background: Modernisation of the 8th Company Law Directive New Directive that will replace the existing Eighth Council Directive 84/253/EEC of 10 April 1984 A comprehensive, principles based Directive Timing: – Commission proposal March 2004 – Council general approach 7 December 2004 – Political agreement in single reading in Autumn 2005 ? – Formal adoption: early 2006 ? – Transposition by Member States into national law: 2008 (2 years)

5. Slide 4 1.Background: Modernisation of the 8th Company Law Directive Main features of new Directive on statutory audit Approval and registration of statutory auditors and audit firms Standards and report Independence, quality assurance and public oversight Specific requirements for the audit of Public Interest Entities International dimension

6. Slide 5 2.Conditions for approval Statutory audits carried out only by statutory auditors or audit firms approved by the Member State requiring the statutory audit Member States designate the competent authorities responsible for approval (subject to public oversight)

7. Slide 6 2.1 Conditions for approval of statutory auditors Good repute Educational qualifications – university entrance or equivalent – theoretical instruction – practical training (minimum 3 years) – examination of professional competence (test of theoretical knowledge and ability to apply them in practice - exemptions) Continuous education

8. Slide 7 2.2 Conditions for approval of audit firms Natural persons carrying out statutory audits on behalf of the firm must be approved as statutory auditors in that Member State Full harmonisation of ownership and management requirements for audit firms approved in the EU – majority of the voting rights and majority (up to max 75%) of the administrative or management body of an audit firm must be held by statutory auditors or audit firms approved in any Member State Good repute

9. Slide 8 2.3 Mutual recognition between Member States Audit qualifications obtained by statutory auditors on the basis of this Directive are considered equivalent In each Member State, specific legislation relevant for statutory audit  Aptitude test Home country control and oversight by the Member State in which the auditor is approved

10. Slide 9 3.Public register Registration of statutory auditors and audit firms Electronic Accessible to public Name and address of competent authorities in charge of approval, oversight quality assurance and sanctions Information required: – Name, address, names and number of auditors employed – Other registration with competent authorities of other Member States or third countries – Names of shareholders and management – Membership of a network

11. Slide 10 4.Relation with third countries Interrelation of capital markets (globalisation) Approval and registration of auditors and audit firms from third countries that issue audit reports in relation to securities traded in the EU (if not, no legal effect for the audit report) Equivalence and reciprocity principle: – only auditors or audit firms that meet quality criteria equivalent to this Directive can be approved and registered – reciprocal treatment of Member States by the third country

12. Slide 11 4.Relation with third countries Equivalence testing performed by the Commission in cooperation with Member States Prevention from unnecessary international regulatory overlap  exemption from: – Registration – Oversight – Quality assurance – Investigations and sanctions if auditors and audit firms from third countries are subject to equivalent systems

13. Slide 12 4.Relation with third countries Reciprocal cooperative arrangements with third country regulators and supervisors Access to audit working papers – Transfer via the national competent authorities only – Transfer does not violate data protection

14. Slide 13 Further information Visit us! DG Markt website: http://europa.eu.int/comm/internal_market/e n/company/index.htm