Brussels, 16/05/2002 (Agence Europe) - On Thursday, a few weeks after the Enron bankruptcy (this is only a co-incidence), the Commission published a recommendation on the independence of statutory auditors in the EU, generally favouring that auditors be banned from carrying out an audit required by law if they have a relationship with their client that may compromise their independence.
The EU Accounting Directive requires annual and consolidated company accounts be examined by auditors answering certain requirements, but does not set any specific guidelines as to their independence. The recommendation published on Thursday aims to fill this hole by stating that legal auditors should be held to assess, for each audit, all potential risk and threat to their independence, and to ensure the existence of safeguard measures of a nature to attenuate risks. It clearly indicates that this is not acceptable. For example, the auditors should abstain from carrying out an audit: - if they have a direct financial interest, or a substantial indirect financial interest in the client; - if a close member of their family holds a management position with the client; - or if the fees they receive from a single client represent an abnormally high percentage of their revenues. Moreover, the partners involved in the audits should not work for the clients before the expiry of a two-year period. The key partners in the audit should also "rotate" within seven years. The Member States remain free to establish tougher rules.
Though the recommendation is not legally binding, the Commission intends to see it implemented immediately in the whole EU audit sector. Within three years, it will examine how it has been implemented, and whether binding legislation is required, but it could decide to act sooner if the implementation of the recommendation by the Member States is unsatisfactory. "Although I am pleased that some Member States have already started implementing measures in line with this recommendations, I now expect its rapid application throughout the EU", stated Commissioner Frits Bolkestein, adding that "if that does not happen, the Commission will not hesitate to propose more robust, binding measures".