Audit firms outside the EU have welcomed a transition
period that simplifies registration requirements for firms auditing
companies listed in EU member states.
The EC has granted a transitional period for audit reports
concerning annual or consolidated accounts for financial years from
29 June 2008 to 1 July 2010.
During this period, third-country auditors can continue their
audit activities in the EU without being registered under Article
45 of the EU Eighth Company Law Directive provided they supply
information about themselves, and the auditing standards and
independence requirements adhered to when carrying out audits.
Third-country auditors were concerned about burdensome
registration requirements, which could be vastly different from one
European country to another. Article 45, which had been due to come
into effect on 29 June, also required third-country firms and
auditors to be subject to member state systems of oversight,
quality assurance, investigations and penalties.
Pragmatic solution
Nick Jeffrey from Grant Thornton UK is part of a team advising
Grant Thornton International member firms on their EU audit
registration requirements. He called the transitional period a
pragmatic solution that provides market participants with breathing
space “to do the right thing” by the capital markets.
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By GlobalData“The worse solution would have been to rush into something which
was inappropriate and actually harms the capital markets in the
European Union, rather than supporting the confidence and
robustness,” he said.
Jeffrey added that the jurisdictions included in the
transitional period cover most Grant Thornton member firms that are
involved in the audit of listed companies in the EU – the
Netherlands Antilles might be one exception. He said the decision
will have a positive effect on the network’s member firms.
“There was a regrettable degree of confusion around what
information the regulators in each of the member states would want
and we now understand the nature of the information required,” he
explained.
“What we were hoping for was ideally if you were an auditor from
outside the European Union, you’d only need to register once, in
one [member state], with one set of information and that would be
satisfactory for every member state regulator. The regulators in
the member states haven’t been able to get to that position.
“But [following the EU decision on the transition period] we are
now in a position where auditors have to register in each member
state, but only need to give broadly the same information in each
instance, and that is very good news.”
Deloitte Australia currently has eight clients listed on EU
capital markets, although that number fluctuates significantly.
Audit partner Caithlin McCabe said she was concerned registration
requirements would represent a significant burden on Deloitte if
member states worked individually.
“We were concerned that they would differ, and in fact there is
still the possibility that some differences may arise once the
individual member states finalise their requirements,” she
said.
“Differing requirements by jurisdiction adds to the complexity
of our compliance obligations. We believe that it is important that
audit regulators, via the Independent Forum of Independent Audit
Regulators, strive for consistency and mutual recognition to the
fullest extent possible.”
McCabe said the transitional registration requirements are
relatively straightforward and will have limited impact on the
firm.
During the transitional period, the EC will continue to assess
the equivalence of third-country oversight, quality assurance and
investigation and penalties systems of certain non-EU
countries.
Firms hope the extra time will encourage regulators to establish
reliance agreements whereby firms registered in one country would
satisfy the requirements of others within the EU. McCabe is
confident that by the end of the transition period the EU and the
Australian regulator will have reached a reliance agreement.
Jeffrey said Grant Thornton is now looking beyond the
transitional period to reliance between regulators.
“I am not sure it will be as many as 30 that have maximum
reliance [by the end of the transitional period], so at that point
we will be very interested in what the next stage is from the
European Commission. We will be very interested to see what they do
with that list of 30,” he said.
Carolyn Canham
