26 June 2014

FEE: Cross-border audit oversight

The EC regularly publishes decisions regarding the equivalence of systems of public oversight, quality assurance, investigation and penalties for the audit profession in the EU and third (i.e. non-EU) countries.

The purpose of this factsheet is:

- To provide a summary of these decisions, in addition to some background information on the EU legislative framework applicable to audit oversight relations within the EU and between EU and third-country oversight authorities; and

- To outline the importance of providing formal mechanisms for the timely exchange of information and coordination of oversight in cross-border cases. This will be of particular interest for FEE member bodies and for auditors1 of entities registered on a stock exchange outside the EU and/or third-country subsidiaries of EU-based clients.

The Directive 2014/56/EU of the European Parliament and the Council of the EU on statutory audits of annual accounts and consolidated accounts (referred to as “the Directive”) and the Regulation (EU) No 537/2014 of the European Parliament and the Council of the EU on specific requirements regarding statutory audit of public interest entities (referred to as “the Regulation”) have been adopted on 16 April 2014 and entered into force on 17 June 2014. By 17 June 2016, the Directive needs to be transposed by the respective Member States into their national legislation in order to become effective.

Most provisions of the Regulation will also be applicable as from 17 June 2016, which ties in with the implementation date of the Directive.

The Directive and Regulation include specific provisions with regard to the following:

- Public oversight and regulatory arrangements between EU Member States

In accordance with the Directive, Member States are required to establish an effective system of public oversight of statutory auditors5 and to enable effective cooperation of oversight on the EU level. The coordination of these national public-oversight systems at EU level was performed by the European Group of Auditors’ Oversight Bodies (EGAOB) since December 2005; this body is to be replaced by the Committee of European Auditing Oversight Bodies (CEAOB) in accordance with the Regulation.

- Public oversight of statutory auditors of companies in third countries whose transferable securities are admitted to trading on a regulated market of a Member State

Third-country auditors must be registered by the competent Member-State authorities in accordance with Article 45 of the Directive. This article also requires that they be subject to the Member States’ systems of public oversight, quality assurance, investigation and penalties.

However, article 46 of the Directive allows Member States to derogate from these requirements if the third-country auditors concerned are subject to similar systems that the Commission has deemed equivalent to those in Member States. The relevant requirements for Member States’ systems are set out in articles 29, 30 and 32.

The equivalence of systems established in third countries is assessed by the Commission in cooperation with Member States. Should systems not be deemed equivalent, the Commission may nonetheless allow the auditors concerned to continue their audit activities in accordance with the requirements of the relevant Member State during an appropriate transitional period.

Collaboration in regulatory activity is also promoted by the International Forum of Independent Audit Regulators (IFIAR), which was established in 2006 to share knowledge of the audit market environment and practical experience of independent audit regulatory activity.

As stated in previous publications, FEE believes that 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.

Press release

Factsheet

© FEE