« Eighth » Company Law Directive Statutory Audit REPARIS Workshop Vienna, 14 March 2006 Jean-Philippe Rabine

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

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 • Approval • 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)

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

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

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

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

12. Further information Visit us! DG Markt website: http://europa.eu.int/comm/internal_market/en/company/index.htm