Monitoring the work of audit firms from outside the European Union
News types: Guidance
Published: 7 March 2012
The Professional Oversight Board today published for consultation proposals on the external monitoring of auditors of companies from outside the EU that have issued securities on the London Stock Exchange.
These proposals are designed to meet the requirements of the Statutory Audit Directive. In general they would not apply where the audit firm is already subject to an equivalent system of regulation in its home country. The focus is on auditors from countries that the European Commission has not recognised as having an equivalent system of regulation, or as having firm plans to introduce one. There are 301 such audit firms from 21 countries undertaking just over 40 relevant audits.
Paul George, Director of the Oversight Board said:
“It is important that investors understand the degree of assurance offered by any audit inspection regime and do not place more weight on it than is justified by the assurance it delivers. It is certainly challenging to find a proportionate way of monitoring the quality of audit work at firms widely scattered across the world that only have one or two relevant clients and operate in countries that present obstacles to effective inspection, for example by blocking access to audit working papers.”
“Overall, we are doubtful that the regulatory work and costs required to apply the same inspection approach internationally as that applied in the UK would be justified by the benefits for investors, having regard to the value of the shares traded in London of the companies being audited. We have therefore proposed a range of options and would particularly welcome the views of investors on the different inspection approaches we have proposed and the value they would place on such monitoring of the relevant audit firms.”
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The Financial Reporting Council is the UK’s independent regulator for promoting high quality corporate governance and reporting to foster investment.
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The Professional Oversight Board contributes to the achievement of the Financial Reporting Council’s overall aims through its four main responsibilities:
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its statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
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monitoring the quality of the auditing function in relation to economically significant entities;
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independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
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independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
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The Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work. The Interim Chair is John Kellas CBE.
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Articles 45 and 46 of the Statutory Audit Directive (2006/43/EC) set out the requirements. These are implemented into the law in the UK by provisions in the Companies Act 2006 and the Statutory Auditors and Third Country Auditors Regulations 200, both as amended. The responsibility for registering and regulating third country auditors within the statutory framework is delegated by Government to the Professional Oversight Board.
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The European Commission’s published a revised draft of the Decision on 27 May. The Financial Services Authority is responsible for imposing the requirement that a company incorporated outside the EU whose transferable securities are admitted to trading on a UK regulated market must use auditors that meet particular criteria. The FSA Consultation Paper 07/24 proposes that the auditors must either be a UK or other EU statutory auditor, or must be on the UK register of third country auditors that the Oversight Board will maintain. These requirements are expected to apply in respect of audits of accounts for financial periods starting on or after 29 June 2008.
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Press enquiries should be directed to Paul George, POB Director, on 0207 492 2340 or to John Grewe, Project Manager, 0207 492 2345.
Document created under a former FRC operating body.