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Statutory audits of annual accounts and consolidated accounts

This Directive aims to increase the credibility of financial reporting and to enhance the European Union’s (EU) protection against financial scandals by laying down rules harmonising the procedures for statutory audits of annual accounts and consolidated accounts. It establishes, among other things, a requirement for external quality assurance, provisions on public supervision, the duties of statutory auditors and the application of international standards and the principles of independence applicable to statutory auditors. The Directive also provides a basis for cooperation between regulators in the EU and those in third countries.

ACT

Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC [See amending acts].

SUMMARY

This Directive aims to reinforce and harmonise statutory audit procedures throughout the EU. It clarifies the duties of statutory auditors and establishes ethical principles to guarantee their objectivity and independence.

Approval, continuing education and mutual recognition

A statutory audit may be carried out only by statutory auditors * or audit firms * which are approved by the Member State requiring the statutory audit.

The Directive updates the course of studies auditors must follow. An auditor may be approved to carry out a statutory audit only after having attained university entrance or equivalent level, then completed a course of theoretical instruction, undergone practical training and passed an examination of professional competence.

Audit qualifications obtained by statutory auditors on the basis of the Directive should be considered equivalent by the Member States. The knowledge of auditors should be tested before a statutory auditor from another Member State can be approved.

The regulatory arrangements of Member States must respect the principle of home-country regulation and oversight by the Member State in which the statutory auditor or audit firm is approved and the audited entity has its registered office.

Registration

The Member States must ensure that all approved statutory auditors and audit firms are entered in a register which is accessible to the public and which contains basic information concerning statutory auditors and audit firms. They must also ensure that statutory auditors and audit firms notify the competent authorities in charge of the public register without undue delay of any change of information contained in the public register.

Professional ethics, independence, objectivity, confidentiality and professional secrecy

All statutory auditors and audit firms are subject to principles of professional ethics, covering at least their public-interest function, their integrity and objectivity and their professional competence and due care.

Member States must ensure that, when carrying out a statutory audit, the statutory auditor and/or the audit firm is independent of the audited entity and is not involved in the decision-taking of that entity. A statutory auditor or an audit firm must not carry out a statutory audit if there is any direct or indirect financial, business, employment or other relationship between the statutory auditor, audit firm or network and the audited entity.

All information and documents to which a statutory auditor or audit firm has access when carrying out a statutory audit must be protected by adequate rules on confidentiality and professional secrecy.

Auditing standards and audit reporting

The Commission may decide on the applicability of international auditing standards * within the EU. Member States must require statutory auditors and audit firms to carry out statutory audits in compliance with international auditing standards adopted by the Commission.

Where an audit firm carries out a statutory audit, the audit report must be signed by at least the statutory auditor carrying out that audit on behalf of the audit firm.

Quality assurance

Member States are obliged to organise a system of quality assurance for statutory audits that must meet the criteria laid down in the Directive. These cover, for example, the independence of those responsible for ensuring public oversight, secure funding and adequate resources for the system and the selection of reviewers for specific quality assurance review assignments.

Investigations and penalties

There must be effective systems of investigations and penalties to detect, correct and prevent inadequate execution of statutory audits.

Public oversight and regulatory arrangements between Member States

Member States must organise an effective system of public oversight for statutory auditors and audit firms. All statutory auditors and audit firms must be subject to public oversight, governed by non-practitioners * who are knowledgeable in the areas relevant to the statutory audit.

Regulatory arrangements of Member States must respect the principle of home-country regulation and oversight by the Member State in which the statutory auditor or audit firm is approved and the audited entity has its registered office.

The statutory audit of public-interest entities

Each public-interest entity must have an audit committee, responsible, among other things, for:

  • monitoring the financial reporting process;
  • monitoring the effectiveness of the company's internal control, internal audit where applicable, and risk management systems;
  • monitoring the statutory audit of the annual and consolidated accounts;
  • reviewing and monitoring the independence of the statutory auditor or audit firm, and in particular the provision of additional services to the audited entity.

International aspects

The competent authorities of a Member State may approve a third-country auditor as a statutory auditor if that person has furnished proof that he or she complies with requirements equivalent to those laid down in the Directive. The competent authorities of a Member State must register every third-country auditor and audit entity that provides an audit report concerning the annual or consolidated accounts of a company incorporated outside the EU.

Member States may allow, in accordance with the Directive, the transfer to the competent authorities of a third country of audit working papers or other documents held by statutory auditors or audit firms approved by them.

Key terms used in the act

  • Statutory auditor: a natural person who is approved in accordance with the Directive by the competent authorities of a Member State to carry out statutory audits.
  • Audit firm: a legal person or any other entity, regardless of its legal form, that is approved in accordance with the Directive by the competent authorities of a Member State to carry out statutory audits.
  • Non-practitioner: any natural person who, for at least three years before his or her involvement in the governance of the public oversight system, has not carried out statutory audits, has not held voting rights in an audit firm, has not been a member of the administrative or management body of an audit firm and has not been employed by, or otherwise associated with, an audit firm.
  • International auditing standards: International Standards on Auditing (ISA) and related Statements and Standards, insofar as relevant to the statutory audit.
  • International accounting standards: International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and related Interpretations (SIC-IFRIC interpretations), subsequent amendments to those standards and related interpretations, and future standards and related interpretations issued or adopted by the International Accounting Standards Board (IASB).

REFERENCES

ActEntry into force - Date of expiryDeadline for transposition in the Member StatesOfficial Journal

Directive 2006/43/EC [adoption: codecision COD 2004/0065]

29.6.200629.6.2008OJ L 157 of 9.6.2006
Amending act(s)Entry into forceDeadline for transposition in the Member StatesOfficial Journal

Directive 2008/30/EC [adoption: codecision COD 2006/0285]

21.3.2008-OJ L 81 of 20.3.2008

RELATED ACTS

Commission Recommendation of 5 June 2008 concerning the limitation of the civil liability of statutory auditors and audit firms (notified under document number C(2008) 2274 – Official Journal L 162 of 21.6.2008].
The Commission notes that the increasing volatility of market capitalisation has led to much higher liability risks for statutory auditors and audit firms that carry out statutory audits for listed companies. At the same time, access to insurance against these risks has been reduced. The Commission considers that this situation may deter auditors from entering the international audit market for listed companies in the Community and reduce the prospect of new actors emerging in this sector. Consequently, the Commission recommends limiting the civil liability of auditors and audit firms, except in cases of intentional breach of professional duties. In view of the considerable variations between civil liability systems in the Member States, the Commission considers that each Member State should be able to choose the method of limitation which it considers to be the most suitable for its particular case. The Commission invites Member States to inform it of actions taken by 5 June 2010. The Commission adds that the limitation of the liability of auditors should not however prevent injured parties from being fairly compensated.

Last updated: 12.12.2008
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