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Third Country Auditors

Regulation of third country auditors

The Statutory Audit Directive (2006/43/EC), adopted by the European Union on 17 May 2006 and transposed into the law in the UK in 2008,  includes specific provisions on the regulation of the auditors of non-EU1 companies that have issued securities admitted to trading on EU-regulated markets2 (third country audit entities). The Statutory Audit Directive was amended by EU Directive 2014/56/EU, adopted by the EU on 16 April 2014 and transposed into UK law in June 2016.

Article 45 of the Statutory Audit Directive (as amended) sets out regulatory requirements for the registration of third country audit entities, for continuing oversight including the external monitoring of the quality of their audit work, and for investigations and sanctions.

Article 46 of the Statutory Audit Directive (as amended) allows Member States to derogate from these requirements where the third country audit entity is subject to a system of public oversight, inspections and investigations which the European Commission has recognised as equivalent, or where the third country audit entity is within transitional arrangements adopted by the European Commission.

The FRC has statutory powers delegated by Government to set the detailed regulatory requirements within the legal framework set out in the Companies Act 20063, the Statutory Auditors and Third Country Auditors Regulations 2013 (SI 2013/1672) and the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649). The FRC has given statutory directions, in accordance with section 1239(7) and section 1242(4) of the Companies Act 2006, as amended. These are set out in the following document:

Directions by the Financial Reporting Council under the Companies Act 2006

This statutory framework is in accordance with the implementing measures adopted by the European Union by the European Commission Decisions of:

The requirements for registration as a third country auditor in the UK and how to register can be found here.

Specific information on the regulation of third country auditors for those who invest in the relevant companies through the UK capital market can be found through the following link:  Information for investors
1 For this purpose, the EU includes members of the European Economic Area – that is, member states plus Norway, Iceland and Lichtenstein.
2 A list of the regulated markets in the European Union as of 1 March 2008 can be found via this link.
3 See in particular Chapter 5 of Part 42 of the Companies Act 2006, as amended.

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