Corporate & Securities Law

By Jim Hamilton

The European Commission will allow third-country audit firms to audit the financial statements of EU listed companies under an equivalence regime based on reciprocity and equivalent oversight systems. The PCAOB and other national bodies are tentatively recognized as equivalent audit oversight regimes under a transitional plan leading to final equivalence decisions. In order to protect investors, during the transitional period non-EU auditors from the third countries concerned should be able to continue their
audit activities without being registered under the Statutory Audit Directive only if they
provide information about themselves, and the auditing standards and independence requirements applied to them when carrying out audits. Information about the
outcome of individual quality assurance reviews will also be useful for this purpose.

The Commission?s decision allows 30 third-country audit firms to continue their audit activities regarding third-country companies listed on European markets by granting the audit firms a transitional period in respect to registration requirements until July 1, 2010. Audit firms from third countries that do not fall under the transitional regime will be subject to full registration and oversight by the competent EU member state.

The new Directive on Statutory Audit empowers the Commission to regulate non-EU auditors. The Directive requires non-EU auditors conducting audits on companies incorporated outside the EU whose securities are admitted to trading on an EU-regulated market to register with the relevant authority in each EU state in which their clients' securities are admitted to trading and to be subject to that state's oversight. However, an audit firm can be exempted from registration based on reciprocity and provided that the firm is subject to an oversight system that the European Commission has recognized as equivalent

An earlier consultation report on this issue noted that many EU audit firms currently fall under PCAOB oversight. The Sarbanes Oxley Act requires foreign public accounting firms, which audit or play a substantial role in the audit of an issuer registered with the SEC, to register with the PCAOB. As of January 2007, 241 EU audit firms had registered with the PCAOB. That said, the Commission noted that some EU audit firms have registered only to have the future ability to undertake work for SEC-registered companies should an engagement opportunity arise.

Full post as published by Jim Hamilton's World of Securities Regulation on August 09, 2008 (boomark / email).