Auditors
An EU Directive on the statutory audit of accounts and consolidated accounts provides for external quality assurance, public supervision, the duty of statutory auditors and the application of international standards and principles of independence applicable to a statutory auditor.
A statutory audit may be carried out, only by statutory auditors or audit firms approved by states which require the audit. Auditors may only carry out a statutory audit having attained university or equivalent level and completed a course of theoretical instruction, undergone practical training and passed an examination on professional competence.
Audit qualifications obtained by statutory auditors on the basis of the Directive must be considered equivalent by other EU Â states. The knowledge of auditors should be tested before a statutory auditor from another State can be approved.
The regulatory arrangement of States must respect the principle of home country regulation and oversight by the state in which the statutory auditor is approved and the auditor and the audited entity has its registered office.
States must ensure that all approved statutory auditors and firms are entered in a register which is accessible to the public and contains basic information concerning auditors and audit firm. They must ensure auditors and audit firms notify the parties in charge of the public register without delay of any change of information contained in the public register.
All statutory auditors and audit firms are subject to principles of professional ethics covering their public interest function, integrity, and objectivity and professional competence and due care.
Audit Requirements
States must ensure that when carrying out statutory audits, the auditor and firm is independent of the audited entity and is not involved in the decision-making of that entity. An auditor or audit firm must not carry out an audit if there is a direct or indirect financial business employment or other relationship between the auditor or firm or network and the audited entity.
All information and documents to which the statutory audit firm has accessed in carrying out the audits must be protected by adequate rules on confidentiality and professional secrecy.
The Commission may decide on the application of international auditing standards within the EU. States must require a statutory audit and audit firms to carry out the statutory audit in compliance with international audit standards approved by the Commission. Where the audit firm carries out a statutory audit, the audit report must be signed by at least the auditor carrying out the audits on behalf of the audit firm.
States must organize a system of quality assurance for statutory audits that meet the requirements of the Directive. They cover, for example, independence of those responsible for ensuring public oversight, secure funding and adequate resources for the system of selection of reviewers for specific quality assurance review assignment.
There must be effective systems of investigation and penalties to detect correct and prevent the inadequate execution of statutory audits.
States must organize an effective system of public oversight for statutory auditors and audit firms. Statutory auditors and audit firms must be subject to public oversight by known practitioners who are knowledgeable in the areas relating to that audit.
Regulatory arrangements in States must respect the principle of home country regulation, and oversight by the State in which the statutory auditor or audit firm is approved and the audit entity has its registered office.
Statutory audits may only be carried out by statutory auditors or audit firms approved by EU countries’ competent authorities.
EU countries must keep a public register of these.
Recognition of audit firms outside their home country
An audit firm wishing to carry out statutory audits in an EU country other than its home EU country must register with the competent authority in the host country.
The competent authority in the host country must register the audit firm if it has been registered with the competent authority in its home country.
Approval of statutory auditors from another EU country
Auditors from other EU countries may have to complete an adaptation period (no more than a maximum of 3 years) and/or tests. This ensures they have adequate knowledge of matters such as company law, tax law and social law. Once they have been approved, they must be entered in the public register.
CPD
Statutory auditors are required to take part in continuing education to maintain and upgrade their theoretical knowledge, skills and values.
If they fail to respect these continuing education requirements, they will be subject to sanctions.
Independence and objectivity
EU countries have to ensure that, when carrying out their work, a statutory auditor or an audit firm, and any natural person in a position to directly or indirectly influence the outcome of the statutory audit, is independent of the audited entity and is not involved in the decision-taking of the audited entity.
Independence is required both during:
the period covered by the financial statements to be audited; and
the period when the statutory audit is carried out.
Confidentiality and professional secrecy
Auditors are bound by strict rules to respect the privacy of their clients; however, these rules should not impede the proper enforcement of the directive.
These rules continue to apply to audit firms which have ceased to be involved in a specific audit task.
International standards
All statutory audits should be carried out on the basis of international auditing standards, if and when adopted by the European Commission: The Commission has discretionary power to adopt these standards and it can adopt them only if they respect certain conditions. As long as the Commission has not adopted any international standard, EU countries may apply national standards.
Appointment and dismissal
The statutory auditor or audit firm is appointed by the general meeting of shareholders or members of the audited entity, although EU countries may allow alternatives as long as the independence of the statutory auditor or audit firm from the audited entity is assured.
Auditors or audit firms may be dismissed only where there are proper grounds. Divergence of opinions on accounting treatments or audit procedures is not proper ground for dismissal.
Auditing of consolidated accounts
In the case of consolidated accounts (i.e. of a parent company and subsidiaries), there is a clear definition of responsibilities between the auditors who audit components of the group. The group auditor (i.e. the statutory auditor or audit firm carrying out the audit of the consolidated accounts) bears full responsibility for the audit report.
Quality assurance
EU countries have to introduce a system of quality assurance that is independent of the reviewed auditors and subject to public oversight.
The system includes an assessment of:
compliance with applicable auditing standards and independence requirements;
the quantity and quality of resources spent;
the audit fees charged; and
the internal quality control systems of the audit firms.
The funding for the quality assurance system must be secure and free from any possible undue influence by statutory auditors or audit firms.
Reviewers for specific quality assurance review assignments must be selected by means of an objective procedure designed to ensure that there are no conflicts of interest between the reviewers and the statutory auditor or audit firm under review.
Investigations and sanctions
EU countries must have in place effective systems of investigations and sanctions to detect, correct and prevent inadequate execution of the statutory audit.
Measures taken and sanctions imposed on statutory auditors and audit firms must be appropriately disclosed to the public. Sanctions must include the possibility of withdrawal of approval.
Small businesses
There is no EU requirement for small companies to have a statutory audit.
Where EU countries do require statutory audits of small businesses, these should be conducted taking into account the scale and activities of the companies in question.
Public-interest entities (PIEs)
The statutory audit of PIEs — because of the need for reliable information and their relevance to the public and investors — is subject to strict rules. These include:
a more detailed audit report which includes information about the conduct of the audit;
auditors/auditing firms must rotate;
a list of non-audit services that cannot be provided by the statutory auditor or audit firm to the audited entity which must be drawn up by EU countries;
limits must be placed on fees charged for non-audit services;
an audit committee is created which has a key role in appointing the auditor and monitoring the audit.
Regulation (EU) No 537/2014 contains further rules specifically applicable to PIEs.
Implementing and delegated acts
The directive allows the Commission to adopt implementing and delegated acts regarding the international aspects of the directive. These can further specify how EU countries’ authorities and the various market participants must comply with the obligations laid down in the directive in this sphere.
It has applied since 29 June 2006. EU countries had to incorporate it into national law by 29 June 2008.
DOCUMENTS
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (OJ L 157, 9.6.2006, pp. 87-107)
Successive amendments to Directive 2006/43/EC have been incorporated in the original text. This consolidated version is of documentary value only.
Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (OJ L 158, 27.5.2014, pp. 77-112)
