Brussels, 1 September 2010
Exchange of audit working papers with Australia and the United States of America – Frequently Asked Questions
1) Why has the Commission adopted a Decision on the exchange of audit working papers?
Companies have gone worldwide and are listed on capital markets in different continents. Their auditors have followed them. To allow for an effective global audit oversight in order to protect the investors, international co-operation is required. One form of such co-operation is the exchange of audit working papers or other documents held by auditors and audit firms.
The Decision allows the competent audit oversight authorities of EU Member States to enter into bilateral agreements on the exchange audit working papers with the US audit regulator, the Public Company Accounting Oversight Board (PCAOB), the US securities regulator, the Securities and Exchange Commission (SEC) and the Australian audit regulator, the Australian Securities and Investments Commission (ASIC). This will contribute to reinforcing co-operation on audit oversight between the competent authorities of the EU Member States and those of Australia and the US which will ultimately lead to increased investor protection.
2) Under what conditions is co-operation allowed?
Member States may allow the competent authorities from Australia and the US to have access to audit working papers or other documents held by EU statutory auditors or audit firms only for the exercise of their functions of public oversight, quality assurance, investigations and penalties over auditors and audit firms. Statutory audit means an audit of annual or consolidated accounts of listed companies, banks and insurance companies in so far as required by EU law.
The PCAOB, the SEC and the ASIC have such competences when they perform oversight of audits carried out by EU auditors or audit firms of companies listed on US or Australian capital markets.
Bilateral working arrangements between EU Member States' competent authorities and the Australian or US competent authorities have to be agreed before any transfer of audit working papers or other documents held by EU statutory auditors or audit firms is made to the Australian or US competent authorities.
3) What documents are covered by this Decision?
The documents covered by this Decision are those defined under Article 47 of the Statutory Audit Directive (2006/43/EC): audit working papers or other documents held by statutory auditors or audit firms that relate to the audits of companies which have issued securities in the US or Australia or which form part of a group issuing statutory consolidated accounts in the US or Australia.
4) How will the confidential information in audit working papers and other documents be protected?
Member States have to ensure that the bilateral working arrangements which allow for the transfer of audit working papers or other documents contain appropriate safeguards regarding the protection of personal data as well as the protection of professional secrets and sensitive commercial information mentioned in the transferred documents.
This protection covers the companies whose financial statements are audited as well as the auditors of these companies. The persons employed or formerly employed by competent authorities of the third country that receive the information must be subject to obligations of professional secrecy.
5) How will the exchange be carried out?
It is the individual responsibility of each EU Member State to define how an exchange of audit working papers or other documents can be carried out.
A non-exhaustive list of possible ways to exchange audit working papers would be:
Physical or electronic transmission of documents;
Access to documents during joint inspections of EU audit firms carried out by the EU audit regulator together with the authorities mentioned in the Decision;
Access to documents during observation of the work of EU audit regulators by the authorities mentioned in the Decision.
6) Why is the decision limited in time only for the US?
Europe supports mutual reliance on the oversight of auditors by their home country oversight system where access to audit working papers would only be required in exceptional cases. The US is still in the process to move towards this objective. Nonetheless, the European Commission recognises the need to have a temporary solution in place. For this reason, the decision is limited in time enabling the EU to reassess the situation in three years time.
Australia, Japan, Canada and Switzerland do not intend to evaluate the EU oversight systems via the access to audit working papers.
7) When will access to audit working papers be possible?
Once Member States have negotiated a bilateral agreement with the aforementioned competent authorities of the US and Australia, Member States can allow these authorities access to audit working papers and other documents held by statutory auditors and audit firms in the Member State concerned.
These bilateral agreements have to be based on reciprocity.
8) Why is the SEC included in the Decision?
The US audit regulator PCAOB falls under the oversight of the SEC. Therefore, EU Member States have supported including the SEC in this Decision to facilitate international regulatory co-operation.