13 September 2013

FEE: Factsheet on cross-border audit oversight

The factsheet also outlines the importance of providing formal mechanisms for the timely exchange of information.

Decision 2011/30/EU3

On 19 January 2011 the Commission issued a decision on the equivalence of certain third-country systems of public oversight, quality assurance, investigation and penalties for auditors. The ultimate objective of such equivalence is for EU Member States and third countries to reach mutual reliance on each other’s oversight systems in order to limit unnecessary administrative and regulatory burdens.

The decision reinforced the EU’s cooperation with Australia, Canada, China, Croatia, Japan, Singapore, South Africa, South Korea and Switzerland by confirming that those countries’ systems of public oversight, quality assurance, investigation and penalties had been deemed equivalent to those in EU Member States.

The decision also exempted for a transitional period auditors of companies incorporated in certain third countries from the full regulatory requirements of article 45 of Directive 2006/43/EC on the condition that they provide the appropriate member-state authorities with specific information.

Decision 2013/288/EU4

A more recent Commission implementing decision, issued on 13 June 2013, updates Decision 2011/30/EU by recognising in addition the equivalence of the systems of public oversight, quality assurance, investigation and penalties in Abu Dhabi, Brazil, Dubai International Financial Centre, Guernsey, Indonesia, the Isle of Man, Jersey, Malaysia, Taiwan and Thailand.

It is also stated that, while Bermuda, the Cayman Islands, Egypt, Mauritius, New Zealand, Russia and Turkey have established or are in the process of establishing the relevant systems for auditors, information about the functioning and the rules governing such systems is not currently sufficient for an equivalence assessment to be performed. The transitional period granted by Decision 2011/30/EU in respect of the auditors of companies incorporated in these countries has therefore been extended until 31 July 2015.

The decision does not extend the transitional period for Hong Kong, India or Israel, however. These countries have not established independent systems of public oversight, quality assurance, investigation and penalties; nor have they provided information regarding their audit regulatory and oversight systems. They have thus not taken the necessary measures to have their audit regulation recognised by the Commission as equivalent to that of EU Member States.

Decision 2011/30/EU

This decision also acknowledged that the systems of public oversight, quality assurance, investigation and penalties for auditors in the US operated under similar rules to those set out in articles 29, 30 and 32 of Directive 2006/43/EC.

However, as the competent authorities in the US – namely, the SEC and the PCAOB – had not recognised the equivalence of the EU systems, the Commission stated that the US systems should be reviewed again at a later date for the purpose of assessing the progress made towards reaching mutual reliance.

Decision 2013/281/EU5

The provisions of Decision 2011/30/EU concerning relations between the EU and the US were due to expire on 31 July 2013.

On 11 June 2013, following an equivalence assessment performed in conjunction with the EGAOB, the Commission issued a new implementing decision regarding the relevant US systems. The decision again confirms that these systems are equivalent to those in EU Member States.

However, as the PCAOB intends to further evaluate the auditor oversight systems in the Member States before deciding whether to rely on the oversight performed by the member-state authorities, the decision calls for the US systems to be reviewed once more in the future. The Commission reasserts its view that the ultimate objective of cooperation between Member States and the US should be that of mutual reliance.

The decision adds that Member States should make use of cooperative arrangements with the PCAOB to determine which systems of public oversight, quality assurance, investigation and penaltiesshould apply to the auditors of US companies. Member States may thus exempt certain auditors fromthe relevant EU systems in accordance with such arrangements. The decision also provides audit regulators in Member States with additional time to negotiate cooperative arrangements on individual quality-assurance reviews. The PCAOB has already signed cooperative agreements withthe following Member States (in chronological order): the United Kingdom, the Netherlands, Germany,Spain and France.

FEE believes that there should be robust oversight of the auditing profession in the public interest. The coordination of audit oversight systems is of prime importance for the profession, allowing for the elimination of unnecessary and burdensome duplication of oversight arrangements and supporting the appropriate convergence of good practices. FEE encourages its member bodies to contribute constructively to their Member States’ efforts to enter into negotiations for cooperative arrangements with the PCAOB.

Factsheet

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