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Brussels, 19 January 2011
Commission decision lays the foundation for reinforced international cooperation on the supervision of auditors – Frequently Asked Questions
1) Why has the Commission adopted a Decision on the reinforcement of international cooperation on the supervision of auditors?
Companies are increasingly operating on a global basis and are listed on capital markets in different continents. To allow for effective global auditor oversight in order to protect investors, international co-operation on the supervision of auditors is necessary.
To this end, the Commission has today adopted a Decision recognising the equivalence of ten third country oversight systems for auditors. The objective of an "Equivalence Decision" is to pave the way for cooperative arrangements between the competent auditor oversight authorities of EU Member States and third countries, based on mutual reliance on each others' oversight system for auditors. This will contribute to reinforcing co-operation on auditor oversight between the competent authorities of the EU Member States and third countries which should lead to increased investor protection.
2) How is a third country assessed as equivalent? What does equivalence mean?
A third country may be assessed as equivalent if its system for public auditor oversight is assessed as meeting the requirements set out in the Statutory Audit Directive (Directive 2006/43/EC) which governs public oversight, quality assurance or inspection and investigation and penalty systems of the Member States.
3) What is mutual reliance?
Mutual reliance means that Member States and third countries which have been declared equivalent can agree to rely on the supervisory work of the other.
4) What third countries have been assessed as equivalent today?
Ten third countries are assessed as having equivalent auditor oversight systems: Australia, Canada, China, Croatia, Japan, Singapore, South Africa, South Korea, Switzerland and the United States of America.
More countries will be assessed to determine if they have equivalent systems in the future (in particular, those included in the transitional period).
5) Why are cooperative arrangements necessary?
Equivalence decisions on third country public auditor oversight systems do not provide any automatic or immediate rights to auditors from the concerned third country. After the Commission adopts an equivalence decision, it is up to Member States to decide, based on mutual reliance, to what extent they wish to rely on the public auditor oversight system of the third country concerned. The extent of this reliance and cooperation is set out in cooperative arrangements, which must be signed by both a Member State and a third country to be operational.
6) Why is the Equivalence Decision limited in time for the US?
Europe supports mutual reliance on the oversight of auditors by their home country oversight system. The US is still in the process of moving 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.
7) Why does the Decision include a transitional period for some third countries?
The Commission assessments show that 20 third countries are in the process of establishing independent public oversight systems for auditors. However, further information about the functioning and the rules governing such systems is required before a possible equivalence decision can be taken. These countries have been included in the Decision on a transitional basis to allow for further assessments on their progress to achieve full equivalence.
8) What are the third countries in the transitional period?
The countries in the transitional period are: Abu Dhabi, Bermuda, Brazil, the Cayman Islands, The Dubai International Financial Centre, Egypt, Guernsey, Hong Kong, India, Indonesia, the Isle of Man, Israel, Jersey, Malaysia, Mauritius, New Zealand, Russia, Taiwan, Thailand and Turkey.
9) What are the implications of the transitional period for third country auditors?
During this transitional period, the auditors from these jurisdictions are allowed to perform their audit activities in the EU without being subject to EU auditor oversight or being required to register with EU competent authorities.
However, this transition is only granted if third country audit firms provide Member States with the minimum information requirements necessary for investors' protection in Europe such as an indication of the result of the last inspection of the audit firm or a description of the internal quality control system of the audit firm.
10) Why will the transitional period be reviewed for Bermuda, the Cayman Islands, Israel and New Zealand?
Although these third countries do not have a public oversight system for auditors like the other countries in the Decision, they have made a clear public commitment to the Commission, with a concrete action plan, to establish one. Therefore, to encourage these third countries to finalise this process in the short-term, they are being granted a transitional period. However, the Commission will review the progress made in 2011 by these third countries in enacting legislation to establish a public oversight system for auditors and assess, in the context of this review, the appropriateness of shorten the transitional period.