Brussels, 15/03/2004 (Agence Europe) - On Tuesday, the European Commission is to adopt a proposal of directive strengthening controls on audit firms responsible for the legal control of corporate accounts. Intended to avoid further scandals such as those of Enron, Parmalat or Ahon, the directive fixes ethical rules and proposes a model for coordination between Member States. A tit for tat response - after adoption of the Sarbane Oxley law in the United States, US audit firms will be under an obligation to register on European registers if they wish to operate in the EU. The directive will, however, be based on the principle of mutual recognition of surveillance of audit firms, when controls carried out by third countries comply with sufficient quality standards. Requirements will be more stringent for financial establishments, banks and insurance firms and, optionally for Member States, for other entities at risk such as pension funds.
In order to ensure the independence of account auditors, the directive will ban auditors from being involved in decisions taken by the management of the company audited or from entertaining financial, business or employment relations with this company, especially when it comes to providing other forms of services. The companies audited should create an independent audit committee that will be responsible for monitoring the audit process, selecting auditors and proposing their appointments to shareholders. A company that dismisses an auditor should justify its decision to national authorities. The text, on the other hand, leaves it up to Member States to choose whether or not they wish to impose a regular change of auditor on companies. Rotation could affect either individual auditors or the audit office as a whole.
The directive sets out rules of responsibility when a multinational company is controlled by several audit firms. Final responsibility should be assumed by the auditor responsible for certifying the consolidated accounts of a group. The latter should therefore verify the audit of the different companies that make up the group, carried out by other audit firms.
The audit firms must keep to the rules of ethics and transparency. They should mainly adopt international audit rules. The audit firms should set in place a quality control system. The companies that certify the financial institutions accounts or those of companies quoted on the stock market should present internal quality control measures adopted by them in their annual report.
On the model of the Sarbane Oxley legislation adopted by the United States after the Enron affair, audit firms should be registered on a public electronic register - including non-European firms responsible for auditing companies listed on the stock exchange in Europe.
The directive defines a model of cooperation between the surveillance authorities of Member States, based on the principle of mutual recognition. Supervision will be entrusted to the State where the audit company has its main office. The Commission proposes the creation of an audit committee composed of representatives of national surveillance authorities. According to Lamfalussy procedure, the committee would take part in adoption of secondary legislation and would facilitate coordination between Member States.