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AuditingThe EU's regulation of auditing is currently governed by a directive (the Statutory Audit Directive, SAD) which came into force in June 2006. This directive (2006/43/EC) replaces the previous Eighth Company Law Directive from 1984 and it is therefore sometimes known as the "new eighth directive". It was introduced in the wake of a series of accounting scandals in both the US and the EU and was intended to raise public confidence in the reliability of audited accounts in the EU.

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The SAD sets out professional requirements for auditors, places restrictions on audit firms' non-audit activities with their audit clients and requires EU Member States to set up public oversight bodies (POBs), governed by non-practitioners, to enforce the directive's implementation in their territories. The SAD's provisions on POBs were supplemented by a Commission Recommendation (2008/362/EC) in 2008 on mechanisms to improve quality assurance for the audit of public interest entities.

As with the EU regulations on accounting (see Accounting for SMEs and Accounting for Public Interest Entities), the acquis imposes audit requirements on publicly-traded companies, banks, insurance companies and other "public interest entities" (PIEs) and allows member states to exempt smaller firms from having their annual accounts audited. Additional requirements for PIEs include the obligation to appoint an audit committee to oversee the audit process and to appoint the statutory auditor, while audit firms carrying out audits for PIEs have to demonstrate that they meet a range of requirements on transparency and quality assurance.



News


Recent developments/current issues

Following a lengthy consultation process involving the publication of a Green Paper in October 2010 and a conference in Brussels in February 2011, the European Commission published its proposals for the reform of audit regulation in the EU in November 2011.

The Commission is proposing several important changes to the current system of audit regulation:

  • Compulsory rotation of auditors. Firms will be obliged to change auditors after a maximum period of 6 years (nine years if the audit is carried out by two firms jointly);
  • Public interest entities (PIEs) will be obliged to have an open and transparent tender procedure when selecting a new auditor;
  • Audit firms will be prohibited from providing non-audit services to their audit clients. Large audit firms will also be obliged to separate their audit activities from their non-audit activities;

In addition, the Commission is encouraging the development of a "European passport" for the audit profession to encourage the development of a single market for audit services across the EU and to adopt International Standards on Auditing (ISA) in the EU. The Commission recommends adaptation or aptitude as ways in which mobility of audit professionals may be enhanced. Under this approach, EU statutory auditors who can demonstrate that they have gained sufficient competence and knowledge of the legal, taxation and regulatory framework of another EU state through experience may be exempted from the present requirement to pass an "aptitude test". The proposals also require Member States to ensure that the aptitude test covers only those topics that differ from other EU states (such as national taxation and social security laws for example) thus avoiding the possibility of undue re-testing.

The proposals take the form of a new Regulation, which covers the audit of the financial statements of public interest entities, which is envisaged to come into effect during 2012, and also a new Directive to update the requirements of the current Statutory Audit Directive.

The Commission’s proposals will have to be agreed by the European Council (representing the governments of EU member states) and the European Parliament before they become law. This process means that the measures which are finally adopted may differ in important respects from those set out in the Commission’s proposed directive.


Video Presentations


Source: Senior Officials meet for REPARIS Workshop, 26 - 27 May 2010, Chisinau

Video presentation: "Overview of developments and implementation of the acquis communautaire relating to the statutory audit"

Juan Maria Arteagoitia, Policy Officer, Audit Policy Unit,
Directorate General Internal Market and Services, European Commission

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