28 September 2005

Parliament adopted Directive on Statutory Audits

The European Parliament adopted the Directive on Statutory Audits in first reading which aims to guarantee the independence of auditors towards companies. Under the new rules, European auditors and audit firms will be required to prove their independence from the management of the audited company. The law also requires the application of the International Auditing Standards (IAS) in European auditing.

One problem was the European Commission's proposition for a compulsory audit committee for listed companies as support for the accountants. There are big differences between the national corporate governance systems in Europe. The rapporteur Mr. Doorn said: 'Rules on corporate governance must be left to the Member States. The compromise gives each Member State the possibility to determine the manner in which firms are to regulate and supervise their own version of audit committee.'

Another controversial issue was the obligation for a public interest company to change auditors every five years and audit firm every seven, the so-called rotation. The approved amendment requires rotation, every seven years, only for key audit partner/statutory auditor, and not for the audit firms themselves. A compromise was also reached on the issue of auditors' liability. The text now asks the Commission to present an impact study on current national liability rules and an analysis on the possible limitations of the financial liability in the auditing profession.

An agreement was reached on the comitology procedure for adopting technical rules by the European Commission. Current practice will continue until 2008. By then, the Parliament, Council and Commission should agree on a new comitology procedure, including Parliament's call-back right.

It is expected that the Directive will be adopted by the Council on 8 November. Governments will then have two years to implement the provisions.

Commission Press release

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