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Green Paper on the statutory auditor
The Green Paper launches a discussion on the need for and scope of further Community action to define at European Union (EU) level the role, the position and the liability of the statutory auditor.
Commission Green Paper of 24 July 1996: "The role, the position and the liability of the statutory auditor within the European Union" [COM(96) 338 - Official Journal C 321 of 28.10.1996].
These issues are important in so far as they affect the smooth operation of the single market:
- the audited financial statements of a company established in one Member State are used by third parties in other Member States;
- significant differences in national legislation prevent the establishment of a genuine European market in auditing services.
The audit report is the medium through which the statutory auditor communicates with shareholders, creditors, employees and the public at large. Since the content of the audit report is not prescribed under the Accounting Directives, Member States have specified in their company law which items must be covered. Although there is a spontaneous trend in the EU towards aligning the form of audit reports on international standards, differences still exist between Member States. These differences have an impact on the single market in that they reduce the utility of the reports issued in other Member States.
The absence of common professional standards makes it impossible to guarantee that the quality-control systems in the Member States are equivalent, or even adequate. It is necessary to determine to what extent the professional standards developed by the International Federation of Accountants could provide a basis for defining common standards at EU level.
Since there is no common definition of the independence of persons responsible for the statutory audit of accounts, Member States have dealt with this question in very different ways.
The financial reporting exercise is carried out by the board of directors, the supervisory board, the general meeting of shareholders and the statutory auditor, although their respective roles are not clearly defined. To improve the system of checks and balances within the company, more attention should be paid to issues such as the creation of an audit committee and the establishment of an efficient internal-control system.
Rules on the liability of the statutory auditor differ substantially from one Member State to another. In view of Member States' different legal traditions in the area of civil liability, and the resulting difficulty in tackling this question at Community level, it is necessary to establish whether the negative effects of the differences in the rules on the civil liability of the statutory auditor are significant enough to justify Community action.
The absence of specific rules on the statutory auditing of group accounts gives rise to problems. It is sometimes difficult for the group auditor to obtain information from the management and auditors of the group companies which he does not audit. The procedures involved in the statutory audit of consolidated financial statements should be examined more thoroughly in order to determine whether the problems could be solved without legislative action.
It should be possible to progress towards the creation of a single market in auditing services provided that the quality of auditing can be guaranteed to be equivalent in all Member States and adequate means can be found to ensure that the audit carried out in a particular Member State by a foreign individual or firm is accompanied by guarantees which are at least equivalent to those accompanying an audit by an auditor from that Member State.
There is no convincing reason why the Treaty provisions on freedom of establishment and freedom to provide services should not fully apply to the trade in audit services.
The freedom of individual statutory auditors to become established and provide services is already enshrined in the Directive relating to the mutual recognition of vocational qualifications, although some problems remain.
For firms wishing to set up a subsidiary, freedom of establishment still gives rise to problems because many Member States have adopted laws and regulations which are stricter than the Eighth Directive. Member States should be requested to abolish such national requirements and, where they discriminate on grounds of nationality, action should be taken to ensure compliance with the Treaty.