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International developments on

Audit Regulation

REPARIS WorkshopVienna, 15 March 2006

Jean-Philippe Rabine

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This document was prepared solely for the purpose of informing participants to the March 2006 Reparis Forum.

The views expressed herein only represent the personal views of the author, and cannot be considered whatsoever as representing those of the European Commission.

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Structure of the presentation

• The international dimension in the new Directive:– Overview = effective, balanced, promotes home control+coop– Approval of a foreign natural person– Registration of 3rd country auditors / audit entities– Derogation to registration– Working with 3rd country regulators

• Concrete examples

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Overview of the International dimension of the Directive

• Adoption of International Standards on Auditing

• Registration of 3rd country individual auditors and audit firms with the Member States – Several features have to be equivalent to the EU – Transparency report

• Exemption: equivalence and reciprocity

• Access to audit documents– Principle: transfer via the national competent authorities– Derogation in exceptional cases: direct access

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International Standards on Auditing

• EU harmonisation• International convergence• Conditions: Credibility/quality; generally

acceptable; governance of the standard setter; European public good

• No obligation for the EU to adopt international standards on auditing

• ISA + and ISA –

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The international dimension: Public Oversight System

• One body at State level represents the system (‘point of entry’)

• EGAOB

• International forum?

• Public Interest Oversight Board of IFAC

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Approval of a 3rd Country natural person

• A non-EU natural person wishes to become a « statutory auditor »: possible

• Conditions: – the person has furnished proof that he or she

had at home an educational and training background equivalent to the Directive

– Aptitude test (laws and regulations)– Reciprocity is offered by the 3rd country

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Registration of 3rd country auditors / audit entities

• Scope: foreign companies listed in the EU– Foreign subsidiaries of EU groups out of scope– Individual auditors / audit firms – on a case by case basis

• Registration not a license to perform statutory audits in the EU

• Registration => subject to MS oversight• No registration => audit has no legal effect / MS• Conditions for registration: equivalence

– Ownership of audit firm (MS)– Majority in administrative or management body of audit firm (MS)– Education of auditors (MS)– Auditing standards and independence rules (Commission)– Transparency report (MS)

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Derogation to registration

• Answer to overlapping/costly regulatory oversight: international co-operation

• Scope of derogation: registration, oversight

• Conditions: equivalence / reciprocity

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Working with 3rd country regulators

• Transfer of audit documents to the competent authorities of a third country: possible, subject to– Adequacy test (Commission)– Working arrangements (reciprocal): justification, use

of info abroad, confidentiality– Transfer via competent authorities– Data protection

• Only via competent authorities• Exceptional cases: direct access with EU

auditor

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ExampleGermany US

listed

APAK PCAOB

USAudit firm

US Company

Working arrangements ?

Registration+

Oversight

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ExampleGermany

German company

APAK PCAOB

USAudit firm

US

US subsidiary

Working arrangements ?

German group auditor

Group Audit

Group control