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

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

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 Objectives: reinforce and harmonise the quality of statutory audit in the EU and facilitate the cooperation between Member States and with third countries to reinforce the confidence in the control

Subject Matter and Definitions STATUTORY AUDIT REQUIRED BY COMMUNITY LAW KEY DEFINITIONS: Network Public Interest Entities Non-practitioner Key Audit Partner

Approval, ownership and registration of statutory auditors and audit firms 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) Appointment: general meeting of shareholders Dismissal: valid reasons, communicated to the oversight body Register:

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 ISA: généralement admises sur le plan international et élaborées dans le respect des procédures, des principes de supervision publique et de transparence Contribuent au niveau élevé de crédibilité et de qualité des comptes annuels Répondent à l’intérêt public européen

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 Sanctions: published, include retrait d’agrément Public oversight of: approval, registration, ethics standards, continuous education, quality assurance, investigations, sanctions Transparency (work program, annual report) Cooperation of Public Oversight: Investigation and exchange of information Participation in investigations in another Member State

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

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

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 Audit committee: Commission recommendation on role of non executive directors Exemption: OPCVM

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 The Directive fosters the principles of equivalence and reciprocity. Oversight, quality assurance, investigations and sanctions must be equivalent to EU

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