P6_TA(2005)0353
Statutory audit of annual accounts and consolidated accounts ***I
European Parliament legislative resolution on the proposal for a directive of the European Parlia-
ment and of the Council on statutory audit of annual accounts and consolidated accounts andamending Council Directives 78/660/EEC and 83/349/EEC (COM(2004)0177 — C6-0005/2004 —
2004/0065(COD))
(Codecision procedure: first reading)
The European Parliament ,
— having regard to the Commission proposal to the European Parliament and the Council
(COM(2004)0177) (
1),
— having regard to Article 251 (2) and Article 44(2)(g) of the EC Treaty, pursuant to which the Commis-
sion submitted the proposal to Parliament (C6-0005/2004),
— having regard to Rule 51 of its Rules of Procedure,— having regard to the report of the Committee on Legal Affairs and the opinions of the Committee on
Economic and Monetary Affairs, of the Committee on the Internal Market and Consumer Protection
and of the Committee on Industry, Research and Energy (A6-0224/2005),
1. Approves the Commission proposal as amended;2. Calls on the Commission to refer the matter to Parliament again if it intends to amend the proposal
substantially or replace it with another text;
3. Instructs its President to forward its position to the Council and Commission.
(1) Not yet published in OJ.
P6_TC1-COD(2004)0065
Position of the European Parliament adopted at first reading on 28 September 2005 with a view to
the adoption of Directive 2005/…/EC of the European Parliament and of the Council on statutory
audit of annual accounts and consolidated accounts and amending Council Directives 78/660/EEC
and 83/349/EEC
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty establishing the European Community, and in particular Article 44(2) (g)
thereof,
Having regard to the proposal from the Commission,
Having regard to the opinion of the European Economic and Social Committee (1),
Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),21.9.2006 C 227 E/432 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ C 157, 28.6.2005, p. 115.
(2)Position of the European Parliament of 28 September 2005.
Whereas:
(1) Currently, the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of
the Treaty on the annual accounts of certain types of companies (1), the Seventh Council Directive
83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts (2),
Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidatedaccounts of banks and other financial institutions (
3) and Council Directive 91/674/EEC of 19
December 1991 on the annual accounts and consolidated accounts of insurance undertakings (4)
require that the annual accounts or consolidated accounts be audited by one or more persons
entitled to carry out such audits.
(2) The conditions for the approval of persons responsible for carrying out the statutory audit have
been laid down in the Eighth Council Directive 84/253/EEC of 10 April 1984 based on Article
54(3)(g) of the Treaty on the approval of persons responsible for carrying out the statutory audits ofaccounting documents (
5).
(3) The lack of a harmonised approach to statutory auditing in the Community was the reason why the
Commission proposed in its 1998 Communication on ‘The Statutory Audit in the European Union:the way forward’ (
6) the creation of a Committee on Auditing which could develop further action in
close cooperation between the accounting profession and Member States.
(4) On the basis of the work of that Committee, the Commission issued a Recommendation on ‘Quality
Assurance for the Statutory Audit in the EU: minimum requirements ’(7) in November 2000 and a
Recommendation on ‘Statutory Auditors' Independence in the EU : A Set of Fundamental Principles ’(8)
in May 2002 .
(5) This Directive aims at substantial — though not full — harmonisation of statutory audit
requirements. A Member State requiring statutory audit may impose more stringent require-
ments, unless otherwise indicated in this Directive.
(6) Audit qualifications obtained by statutory auditors on the basis of this Directive are considered
equivalent. It should therefore no longer be possible for Member States to insist that a majority ofthe voting rights in an audit firm must be held by locally approved auditors or that a majority ofthe members of the administrative or management body of an audit firm must be locally approved.
(7) The statutory audit requires adequate knowledge of matters such as company law, fiscal law and
social law. Such knowledge should be tested before a statutory auditor from another Member Statecan be approved.
(8) In order to protect third parties, all approved auditors and audit firms should be entered in a register
which is accessible to the public and which contains basic information about the statutory auditor
or the audit firm.
(9) Statutory auditors should adhere to the highest ethical standards. They should therefore be subject
to professional ethics, covering at least their public interest function, their integrity and objec-
tivity and their professional competence and due care. The public interest function of statutoryauditors means that a broader community of people and institutions rely on the quality of a stat-utory auditor's work. Good audit quality contributes to an orderly functioning of markets byenhancing the integrity and efficiency of financial statements. The Commission may adopt imple-menting measures on professional ethics as minimum standards. In doing so, the principles
contained in the International Federation of Accountants (IFAC) Code of Ethics might be consid-
ered .21.9.2006 C 227 E/433 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive 2003/51/EC of the European Parliament and of
the Council (OJ L 178, 17.7.2003, p. 16).
(2) OJ L 193, 18.7.1983, p. 1. Directive as last amended by Directive 2003/51/EC.
(3) OJ L 372, 31.12.1986, p. 1. Directive as last amended by Directive 2003/51/EC.
(4) OJ L 374, 31.12.1991, p. 7. Directive as amended by Directive 2003/51/EC.
(5) OJ L 126, 12.5.1984, p. 20.
(6) OJ C 143, 8.5.1998, p. 12.
(7) OJ L 91, 31.3.2001, p. 91.
(8) OJ L 191, 19.7.2002, p. 22.
(10) It is important that statutory auditors and audit firms respect the privacy of their clients. They
should therefore be bound by strict rules on confidentiality and professional secrecy which,
however, should not impede proper enforcement of this Directive .Those confidentiality rules
should also apply to any statutory auditor or audit firm which has ceased to be involved in aspecific audit task.
(11) Statutory auditors and audit firms should be independent when carrying out a statutory audit. They
may inform the audited entity of matters arising from the audit, but should abstain from theinternal decision processes of the audited entity. If they find themselves in a situation where the
significance of the threats to their independence, even after application of safeguards to mitigate
those threats, is too high, they should resign or abstain from the audit engagement. The conclusion
that there is a relationship which compromises the auditor's independence may be different asregards the relationship between the auditor and the audited entity from that in respect of therelationship between the network and the audited entity. Where a cooperative within the meaningof Article 2(14), or a similar entity as referred to in Article 45 of Directive 86/635/EEC, is
required or permitted under national provisions to be a member of a non-profit making auditing
entity, an objective, reasonable and informed party would not conclude that the membership-based relationship compromises the statutory auditor's independence, provided that when such anauditing entity is conducting a statutory audit of one of its members, the principles of indepen-dence are applied to the auditors carrying out the audit and those persons who may be in a posi-tion to exert influence on the statutory audit. Examples of threats to the independence of a statu-
tory auditor or audit firm are a direct or indirect financial interest in the audited entity and the
provision of additional non-audit services. Also, the level of fees received from one audited entityand/or the structure of the fees can threaten the independence of a statutory auditor or auditfirm. Types of safeguards to be applied to mitigate or eliminate these threats include prohibi-tions, restrictions, other policies and procedures and disclosure. Statutory auditors and audit
firms should refuse to undertake any additional non-audit service that compromises their inde-
pendence. The Commission may adopt implementing measures on independence as minimumstandards. In doing so, the Commission might take into consideration the principles contained inthe Commission Recommendation of 16 May 2002 on ‘Statutory Auditors' Independence in theEU: A Set of Fundamental Principles’. In order to determine the independence of auditors, theconcept of a ‘network’ in which auditors operate needs to be clear. In this regard, various circum-
stances have to be taken into account such as instances where a structure could be defined as a
network because it is aimed at profit or cost sharing. The criteria for demonstrating that there isa network should be judged and weighed on the basis of all factual circumstances available, suchas whether there are common usual clients.
(12) In cases of self review or self interest, where appropriate to safeguard the statutory auditor's or
audit firm's independence, it should be for the Member State rather than the statutory auditor orthe audit firm to decide whether the statutory auditor or audit firm should resign or abstain
from an audit engagement with regard to its audit clients. However, this should not lead to a
situation where Member States have a general duty to prevent statutory auditors or audit firmsfrom providing non-audit services to their audit clients. For the purposes of determining whetherit is appropriate, in cases of self interest or self review, that a statutory auditor or audit firmshould not carry out statutory audits, so as to safeguard the statutory auditor's or audit firm'sindependence, the factors to be taken into account should include the question whether or not the
audited public interest entity has issued transferable securities admitted to trading on a regulated
market within the meaning of Article 4(1), point 18 of Directive 2004/39/EC of the EuropeanParliament and of the Council of 21 April 2004 on markets in financial instruments (
1).
(13) It is important to ensure a consistent high quality of all statutory audits required by Community
law. All statutory audits should therefore be carried out on the basis of international auditing stan-dards. The measures necessary for the implementation of this Directive should be adopted in21.9.2006 C 227 E/434 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 145, 30.4.2004, p. 1.
accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for
the exercise of implementing powers conferred on the Commission (1)and with due regard to the
statement made by the Commission in the European Parliament on 5 February 2002 concerningthe implementation of financial services legislation. A technical committee or group on auditingwill assist the Commission in the assessment of the technical soundness of all the internationalauditing standards, and should also involve the system of public oversight bodies of Member
States. In order to achieve a maximum degree of harmonisation, Member States should only be
allowed to impose national additional audit procedures or requirements if these follow from specific
national legal requirements relating to the scope of the statutory audit of annual or consolidated
accounts, meaning that these requirements have not been covered by the adopted internationalauditing standards. Member States could maintain these additional audit procedures until theaudit procedures or requirements have been covered by subsequently adopted international
auditing standards. If adopted international auditing standards would however contain audit
procedures the performance of which would create a specific legal conflict with national lawfollowing from specific national requirements related to the scope of the statutory audit, MemberStates may carve out the conflicting part of the international auditing standard as long as theseconflicts exist, provided the measures referred to in Article 26(3) are applied. Any addition orcarve out by Member States should add a high level of credibility to the annual accounts of
companies, and be conducive to the public good. The above implies that Member States can, for
example, require an additional auditor's report to the supervisory board or other reporting andaudit requirements based on national corporate governance rules.
(14) In order for the Commission to adopt an international auditing standard for application in the
Community, it is necessary that it is generally accepted internationally and that it has been devel-
oped with full participation of all interested parties following an open and transparent procedure,that it adds to the credibility and quality of annual accounts and consolidated accounts and that it isconducive to the European public good. The need for the adoption of an International Auditing
Practice Statement as part of a standard should be assessed under the comitology procedure on acase by case basis. The Commission should ensure that before the start of the adoption process a
review is conducted to see whether these requirements have been met and report to members of
the Auditing Regulatory Committee on the outcome of the review.
(15) In the case of consolidated accounts, it is important that there is a clear definition of responsibilities
between the statutory auditors who audit components of the group. For this purpose, the group
auditor should bear full responsibility for the audit report.
(16) In order to increase comparability between companies applying the same accounting standards, and
to enhance public confidence in the audit function, the Commission may adopt a common audit
report for the audit of annual accounts or consolidated accounts prepared on the basis of approvedinternational accounting standards, unless an appropriate standard for such a report has been
adopted at Community level .
(17) Regular inspections are a good means of achieving a consistent high quality of statutory audits. Statu-
tory auditors and audit firms should therefore be subject to a system of quality assurance that isorganised in a manner which is independent from the reviewed statutory auditors and audit firms.For the application of Article 29 on quality assurance systems, Member States may decide that if
individual auditors have a common quality assurance policy only the requirements for audit firms
need to be considered. Member States may organise the system of quality assurance in such amanner that each individual auditor is to be subject to a quality assurance review at least every 6years. In this respect, the funding for the quality assurance system should be free from undueinfluence. The Commission should have the competence to adopt implementing measures inmatters relevant to the organisation of quality assurance systems, and in respect of its funding,
in cases where public confidence in the quality assurance system is seriously compromised.
Member States should be encouraged to find, through the public oversight system, a coordinatedapproach to the carrying-out of quality assurance reviews with a view to avoiding the impositionof unnecessary burdens on the parties concerned.21.9.2006 C 227 E/435 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 184, 17.7.1999, p. 23.
(18) Investigations and appropriate sanctions contribute to preventing and correcting inadequate execu-
tion of a statutory audit.
(19) Member States should organise an effective system of public oversight for statutory auditors and
audit firms on the basis of home country control. The regulatory arrangements for public oversight
should enable an effective cooperation at Community level between oversight activities of Member
States. The system of public oversight must be governed by non-practitioners who are knowledge-
able in the areas relevant to statutory audit. Member States may however allow a minority ofpractitioners to be involved in the governance of the public oversight system. These non-practi-tioners may be specialists who have never been linked with the audit profession or former practi-
tioners who have left the profession. Competent authorities of Member States should cooperate with
each other whenever necessary for the purpose of carrying out their oversight duties on statutoryauditors or audit firms approved by them. Such cooperation can make an important contribution to
ensuring a consistent high quality of the statutory audit in the Community. Since it is necessary to
ensure efficient cooperation and coordination at European level among competent authorities
designated by Member States, the designation of one entity, responsible for ensuring cooperation,
should be without prejudice to the ability of each single authority to cooperate directly with theother competent authorities of the Member States.
(20) In order to ensure compliance with Article 32(3) (Principles of public oversight), a non-practi-
tioner is deemed to be knowledgeable in the areas relevant to the statutory audit either because ofhis past professional skill, or alternatively because he has knowledge of at least one of thesubjects listed under Article 8.
(21) The statutory auditor or audit firm should be appointed by the general meeting of shareholders or
members of the audited entity. In order to protect the independence of the auditor it is important
that dismissal should only bepossible where there are proper grounds and if these grounds are
communicated to the authority or authorities responsible for public oversight.
(22) Since public interest entities have a higher visibility and are economically more important, stricter
requirements should apply in the case of a statutory audit of their annual or consolidated accounts.
(23) Audit committees and effective internal control system contribute to minimise financial, operational
and compliance risks, and enhance the quality of financial reporting. Member States might have
regard to the Commission Recommendation of 15 February 2005 on the role of non-executive or
supervisory directors of listed companies and on the committees of the (supervisory) board (
1),
which sets out how audit committees should be established and function. Member States maydetermine that the functions assigned to the audit committee or a body performing equivalentfunctions may be performed by the administrative or supervisory body as a whole.
(24) With regard to the duties of the audit committee, according to Article 41, the statutory auditor
or audit firm is in no way subordinated to the committee.
(25) Member States may decide also to exempt public interest entities which are collective investment
undertakings whose transferable securities are admitted to trading on a regulated market fromthe requirement to have an audit committee. This option takes into account the fact that, in thosecases where the collective investment undertaking functions merely for the purpose of pooling the
assets, the employment of an audit committee will not always be appropriate. The financial
reporting and related risks are not comparable to those of other public interest entities. In addi-tion, undertakings for collective investment in transferable securities (UCITS) and their manage-ment companies operate in a strictly defined regulatory environment and are subject to specific21.9.2006 C 227 E/436 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 52, 25.2.2005, p. 51.
governance mechanisms such as controls exercised by their depositary. For those collective invest-
ment undertakings which are not harmonised by Directive 85/611/EEC (1)but subject to equiva-
lent safeguards as provided for by that Directive, Member States should, in this particular case,be allowed to provide for an equal treatment with EU-harmonised collective investment undertak-ings.
(26) In order to reinforce the independence of auditors of public interest entities, the key audit part-
ner(s) auditing such entities should rotate. To organise such rotation, Member States shouldrequire a change of key audit partner(s) dealing with an audited entity, while allowing the auditfirm with which the key audit partner(s) is (are) associated to continue being the statutory
auditor of such entity. Where a Member State considers it appropriate in order to attain the
objectives pursued, that Member State might, alternatively, require the change of the audit firm,without prejudice to Article 42(2).
(27) The interrelation of capital markets underlines the need also to ensure high quality work performed by
auditors from third countries in relation tothe Community capital market. The auditors concerned
should therefore be registered so as to make them subject to quality assurance reviews and to thesystem of investigations and sanctions. Derogations on the basis of reciprocity should be possiblesubject to an equivalence testing to be performed by the Commission in cooperation with Member
States. In any case, an entity which has issued transferable securities on a regulated market
within the meaning of Article 4(1), point 18 of Directive 2004/39/EC should always be audited
by an auditor either registered in a Member State or overseen by competent authorities of thethird country where the auditor comes from, if that third country is acknowledged by theCommission or a Member State to meet requirements equivalent to EU requirements in the fieldof principles of oversight, quality assurance systems and systems of investigations and sanctions,and if this arrangement is reciprocal. If a system of quality assurance of a third country has been
considered by a Member State as equivalent, this does not mean that other Member States have
to accept such national equivalence assessment, nor shall it pre-empt the decision of the Commis-sion.
(28) The complexity of international group audits requires good cooperation between the competent autho-
rities of Member States and those of third countries. Member States should therefore ensure that
competent authorities of third countries can have access to audit working papers and other documents
through the national competent authorities. In order to protect the rights of the parties concernedand at the same time facilitate access tothose papers and documents, Member States should be
allowed to grant direct access to the competent authorities of third countries subject to the agree-
ment of the national competent authority. One of the relevant criteria for the granting of access is
whether the competent authorities in third countries meet requirements which the Commissionhas declared adequate. Pending such a decision by the Commission, and without prejudice thereto,Member States may assess whether the requirements are adequate.
(29) Disclosure of information as referred to in Article 36 and 47 should be in accordance with the
rules on the transfer of personal data to third countries laid down in Directive 95/46/EC of theEuropean Parliament and of the Council of 24 October 1995 on the protection of individualswith regard to the processing of personal data and on the free movement of such data (
2).
(30) The measures necessary for the implementation of this Directive should be adopted in accordance
with Decision 1999/468/EC and with due regard to the declaration made by the Commission in the
European Parliament on 5 February 2002 concerning the implementation of financial services legis-
lation. For that purpose a committee should be set up to assist the Commission .21.9.2006 C 227 E/437 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1)Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS) ( OJ L 375,
31.12.1985, p. 3). Directive as last amended by Directive 2005/1/EC of the European Parliament and of the Council
(OJ L 79, 24.3.2005, p. 9).
(2) OJ L 281, 23.11.1995, p. 31. Directive as amended by Regulation (EC) No 1882/2003 of the European Parliament
and of the Council (OJ L 284, 31.10.2003, p. 1).
(31) The European Parliament should be given a period of three months from the first transmission of
draft amendments and implementing measures to allow it to examine them and to give its
opinion. However, in urgent and duly justified cases, it should be possible to shorten this period.If, within that period, a resolution is passed by the European Parliament, the Commission shouldre-examine the draft amendments or measures.
(32) The measures necessary for the implementation of this Directive should be adopted in accordance with
Decision 1999/468/EC .
(33) In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the
Treaty, the measures provided for in this Directive, in requiring the application of a single set ofinternational auditing standards, the updating of the educational requirements, the definition of
professional ethics and the technical implementation of the cooperation between competent authorities
of Member States and between those authorities and the authorities of third countries, are necessaryin order to achieve the objectives of further enhancing and harmonising the quality of statutory audit
in the Community and facilitating cooperation between Member States and with third countries so
asto strengthen confidence in the statutory audit.
(34) With a view to rendering the relationship between the statutory auditor or audit firm and the audited
entity more transparent , Directives 78/660/EEC and 83/349/EEC should be amended so as to require
disclosure of the audit fee and the fee paid for non-audit services in the notes to the annual accounts
and the consolidated accounts.
(35) Directive 84/253/EEC should be repealed because it lacks a comprehensive set of rules for ensuring
an appropriate audit infrastructure, such as public oversight, disciplinary systems and systems ofquality assurance and because it does not provide specifically for regulatory cooperation between
Member States and third countries. In order to ensure legal certainty , there is a clear need to indicate
that statutory auditors and audit firms that have been approved under Directive 84/253/EEC are
considered as approved under this Directive.
(36) Statutory auditors and audit firms are responsible for carrying out their work with due care and
thus should be liable for the financial damage caused by a lack of the care owed. However, theauditors' and audit firms' ability to obtain professional indemnity insurance cover may beaffected by whether they are subject to unlimited financial liability. For its part, the Commission
intends examining these issues taking into account the fact that liability regimes of the Member
States may vary considerably,
HAVE ADOPTED THIS DIRECTIVE:
Chapter I
Subject matter and definitions
Article 1
Subject matter
This Directive establishes rules concerning the statutory audit of annual and consolidated accounts .
Article 2
Definitions
For the purpose of this Directive, the following definitions shall apply:
(1) ‘Statutory audit’ means an audit of annual accounts or consolidated accounts in so far as required by
Community law;
(2) ‘Statutory auditor’ means a natural person who is approved in accordance with this Directive by the
competent authorities of a Member State to carry out statutory audits;21.9.2006 C 227 E/438 Official Journal of the European Union
Wednesday, 28 September 2005EN
(3) ‘Audit firm’ means a legal body or any other entity that is approved in accordance with this Directive
by the competent authorities of a Member State to carry out statutory audits ,regardless of its legal
form;
(4) ‘Third country audit entity’ means an entity, regardless of its legal form, which carries out audits
of the annual or consolidated accounts of a company incorporated in a third country;
(5) ‘Third country auditor’ means a natural person who carries out audits of the annual or consoli-
dated accounts of a company incorporated in a third country;
(6) ‘Group auditor’ means the statutory auditor(s) or audit firm(s) that carries(carry) out the statutory
audit of the consolidated accounts;
(7) ‘Network’ means the larger structure:
—which is aimed at cooperation and to which a statutory auditor or an audit firm belongs ,and
— which is clearly aimed at profit or cost sharing or shares common ownership, control or
management, common quality control policies and procedures, a common business strategy,the use of a common brand-name or a significant part of professional resources ;
(8) ‘Affiliate of an audit firm’ means any undertaking, regardless of its legal form, which is connected to
the audit firm by means of common ownership, control or management;
(9) ‘Audit report’ means the report referred to in Article 51a of Directive 78/660/EEC and Article 37 of
Directive 83/349/EEC issued by the statutory auditor or audit firm ;
(10) ‘Competent authorities’ means the authorities or bodies designated by law that are in charge of the
regulation and/or oversight of statutory auditors and audit firms or of specific aspects thereof; the
reference to ‘competent authority’ in a specific article means a reference to the authority orbody(ies) responsible for the functions referred to in that article ;
(11) ‘International auditing standards’ means International Standards on Auditing and related Statements
and Standards , in so far as relevant to the statutory audit;
(12) ‘International accounting standards’ means International Accounting Standards (IAS), International
Financial Reporting Standards (IFRS) and related Interpretations (SIC-IFRIC interpretations), subse-quent amendments to those standards and related interpretations, future standards and related inter-
pretations issued or adopted by the International Accounting Standards Board (IASB);
(13) ‘Public interest entities’ means entities governed by the law of a Member State whose transferable
securities are admitted to trading on a regulated market of any Member State within the meaningof Article 4(1), point 18 of Directive 2004/39/EC, credit institutions within the meaning ofArticle 1, point 1 of Directive 2000/12/EC of the European Parliament and of the Council of 20March 2000 relating to the taking up and pursuit of the business of credit institutions (
1)and
insurance undertakings as defined in Article 2(1) of Directive 91/674/EEC. Member States may
also designate other entities as public interest entities, for instance entities that are of significant
public relevance because of the nature of their business, their size or the number of their employees ;
(14) ‘Cooperative’ means a European Cooperative Society as defined in Article 1 of Council Regulation
(EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) (2),
or any other cooperative which requires a statutory audit under Community law, such as creditinstitutions within the meaning of Article 1, point 1 of Directive 2000/12/EC and insuranceundertakings as defined in Article 2(1) of Directive 91/674/EEC;21.9.2006 C 227 E/439 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 126, 26.5.2000, p. 1. Directive as last amended by Directive 2005/1/EC.
(2) OJ L 207, 18.8.2003, p. 1.
(15) ‘Non-practitioner’ means any natural person who for at least three years prior to his or her invol-
vement in the governance of the public oversight system has not carried out statutory audits, has
not held voting rights in an audit firm, has not been a member of the administrative or manage-ment body of an audit firm and has not been employed by or otherwise associated with an auditfirm;
(16) ‘Key audit partner(s)’ means:
a) the statutory auditor(s) designated by an audit firm for a particular audit engagement as
being primarily responsible for carrying out the statutory audit on behalf of the audit firm;or
b) in the case of a group audit at least the statutory auditor(s) designated by an audit firm as
being primarily responsible for carrying out the statutory audit at the level of the group and
the statutory auditor(s) designated as being primarily responsible at the level of material
subsidiaries; or
c) the statutory auditor(s) who sign(s) the audit report.
Chapter II
Approval, continuous education and mutual recognition
Article 3
Approval of statutory auditors and audit firms
1. Statutory audits shall be carried out only by statutory auditors or audit firms which are approved
by the Member State requiring the statutory audit.
2. Each Member State shall designate competent authorities which shall be responsible for approving
statutory auditors and audit firms.
The competent authorities may be professional associations provided that they are subject to a system
of public oversight as provided for in this Directive.
3. Without prejudice to Article 11, the competent authorities of the Member States may only
approve as statutory auditors natural persons who satisfy at least the conditions laid down in Articles 4and 6 to 10.
4. The competent authorities of the Member States may only approve as audit firms those entities
which satisfy the conditions under points (a) to (d) below. Member States may only set additional condi-
tions in relation to point (c). Such conditions shall be proportionate to the objectives pursued and shall
not go beyond what is strictly necessary .
(a) The natural persons who carry out statutory audits on behalf of the firm must satisfy at least the
conditions imposed byArticles 4 and 6 to 12 and must be approved as statutory auditors in that
Member State.
(b) Amajority of the voting rights must be held by audit firms which are approved in any Member State
or by natural persons who satisfy at least the conditions imposed by Articles 4 and 6 to 12;Member States may provide that such natural persons must also have been approved in anotherMember State. For the purpose of the statutory audit of cooperatives and similar entities as referredto in Article 45 of Directive 86/635/EEC, Member States may establish other specific provisions inrelation to voting rights.
(c) Amajority up to a maximum of 75 % of the members of the administrative or management body of
the firm must be audit firms which are approved in any Member State or natural persons who
satisfy at least the conditions imposed by Articles 4 and 6 to 12; Member States may provide thatsuch natural persons must also have been approved in another Member State. Where such a body
has no more than two members, one of those members must satisfy at least the conditions in this
paragraph.
(d) The firm must satisfy the condition imposed by Article 4.21.9.2006 C 227 E/440 Official Journal of the European Union
Wednesday, 28 September 2005EN
Article 4
Good repute
The competent authorities of a Member State may grant approval only to natural persons or firms of good
repute.
Article 5
Withdrawal of approval
1. Approval of a statutory auditor or an audit firm shall be withdrawn if the good repute of that person
or firm has been seriously compromised. Member States may, however, provide for a reasonable period
of time for the purpose of meeting the requirements of good repute.
2. Approval of an audit firm shall be withdrawn if any of the conditions imposed in Article 3 (4), points
(b) and (c) is no longer fulfilled. Member States may, however, provide for a reasonable period of time for
the purpose of meeting those requirements.
3. Where the approval of a statutory auditor or of an audit firm is withdrawn for any reason, the
competent authority of the Member State where the approval is withdrawn shall communicate that factand the reasons for the withdrawal to the relevant competent authorities of Member States where thestatutory auditor or audit firm is also approved, details of which authorities are registered in the formerMember State's register in accordance with Article 15(3).
Article 6
Educational qualifications
Without prejudice to Article 11, a natural person may be approved to carry out a statutory audit only
after having attained university entrance or equivalent level, then completed a course of theoretical instruc-
tion, undergone practical training and passed an examination of professional competence of university
final or equivalent examination level, organised orrecognised by the Member State concerned .
Article 7
Examination of professional competence
The examination of professional competence referred to in Article 6 shall guarantee the necessary level of
theoretical knowledge of subjects relevant to statutory audit and the ability to apply such knowledge inpractice. Part at least of that examination must be written.
Article 8
Test of theoretical knowledge
1. The test of theoretical knowledge included in the examination shall cover the following subjects in
particular:
a) general accounting theory and principles,b) legal requirements and standards relating to the preparation of annual and consolidated accounts,c) international accounting standards,d) financial analysis,
e) cost and management accounting,
f) risk management and internal control,g) auditing and professional skills ,
h) legal requirements and professional standards relating to statutory audit and statutory auditors,i) international auditing standards ,
j) professional ethics and independence.21.9.2006 C 227 E/441 Official Journal of the European Union
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2. It shall also cover at least the following subjects in so far as they are relevant to auditing:
a) company law and corporate governance,b) the law of insolvency and similar procedures,c) tax law,d) civil and commercial law,e) social security law and law of employment,f) information technology and computer systems,g) business, general and financial economics,h) mathematics and statistics,i) basic principles of the financial management of undertakings.3. The Commission may, in accordance with the procedure referred to in Article 48(2) , adapt the list of
subjects to be included in the test of theoretical knowledge referred to in paragraph 1. The Commission
will take into account developments in auditing and the audit profession when adopting these imple-
menting measures.
Article 9
Exemptions
1. By way of derogation from Articles 7 and 8, a Member State may provide that a person who has
passed a university or equivalent examination or holds a university degree or equivalent qualification inone or more of the subjects referred to in Article 8 may be exempted from the test of theoretical knowl-edge in the subjects covered by that examination or degree.
2. By way of derogation from Article 7, a Member State may provide that a holder of a university
degree or equivalent qualification in one or more of the subjects referred to in Article 8 may be exempted
from the test of the ability to apply in practice his theoretical knowledge of such subjects if he has received
practical training in them attested by an examination or diploma recognized by the State.
Article 10
Practical training
1. In order to ensure the ability to apply theoretical knowledge in practice, a test of which is included in
the examination, a trainee shall complete a minimum of three years' practical training in inter alia theauditing of annual accounts, consolidated accounts or similar financial statements. At least two thirds of
such practical training shall be completed with a statutory auditor or audit firm approved in any Member
State.
2. Member States shall ensure that all training is carried out with persons providing adequate guarantees
regarding their ability to provide the practical training.
Article 11
Qualification through long-term practical experience
Member States may approve a person who does not satisfy the conditions laid down in Article 6 as a statu-
tory auditor, if he or she can show either:
a) that he or she has, for 15 years, engaged in professional activities which have enabled him or her to
acquire sufficient experience in the fields of finance, law and accountancy and has passed the examina-tion of professional competence referred to in Article 7 ,o r
b) that he or she has, for seven years, engaged in professional activities in those fields and has, in addi-
tion, undergone the practical training referred to in Article 10 and passed the examination of profes-
sional competence referred to in Article 7 .21.9.2006 C 227 E/442 Official Journal of the European Union
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Article 12
Combination of practical training and theoretical instruction
1. Member States may provide that periods of theoretical instruction in the fields referred to in Article 8
count towards the period of professional activity referred to in Article 11, provided that such instruction isattested by an examination recognized by the State. Such instruction must last not less than one year, normay it reduce the period of professional activity by more than four years.
2. The period of professional activity as well as the practical training must not be shorter than the
course of theoretical instruction and the practical training required in Article 10.
Article 13
Continuous education
Member States shall ensure that statutory auditors are subject to appropriate programmes of continuous
education in order to maintain their theoretical knowledge, professional skills and values at a sufficiently high
level , and that failure to respect the continuous education requirements is subject to appropriate sanctions
as referred to in Article 30.
Article 14
Approval of statutory auditors from other Member States
The competent authorities of the Member States shall establish procedures for the approval of statutory
auditors which have been approved in other Member States. Those procedures shall not go beyond a
requirement to pass an aptitude test in accordance with Article 4 of Council Directive 89/48/EEC (
1). The
aptitude test , which shall be conducted in one of the languages permitted by the language rules applic-
able in the Member State concerned, shall only cover the statutory auditor's adequate knowledge of the
laws and regulations of that Member State in so far as relevant for the statutory audit.
Chapter III
Registration
Article 15
Public register
1. Member States shall ensure that statutory auditors and audit firms are entered in a public register in
accordance with Articles 16 and 17. In exceptional circumstances, Member States may disapply the
requirements laid down in this Article and Article 16 regarding disclosure only to the extent necessaryto mitigate an imminent and significant threat to the personal security of any person .
2. Member States shall ensure that each statutory auditor and audit firm is identified in the public
register by an individual number. Registration information shall be stored in the register in electronic form
and shall be electronically accessible by the public.
3. The public register shall also contain the name and address of the competent authorities in charge of
approval as referred to in Article 3, quality assurance as referred to in Article 29, investigations and sanc-
tions on statutory auditors and audit firms as referred to in Article 30, and public oversight as referred to
inArticle 32 .
4. Member States shall ensure that the public register is fully operational by … (*).21.9.2006 C 227 E/443 Official Journal of the European Union
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(1)Council Directive 89/48/EEC of 21 December 1988 on a general system for the recognition of higher-education diplomas
awarded on completion of professional education and training of at least three years' duration ( OJ L 19, 24.1.1989, p. 16 ).
Directive as amended by Directive 2001/19/EC of the European Parliament and of the Council ( OJ L 206, 31.7.2001, p. 1).
(*)3 years after the entry into force of this Directive.
Article 16
Registration of statutory auditors
1. As regards statutory auditors, the public register shall, at least, contain the following information:
a) name, address and registration number;
b) if applicable, the name, address, website address and registration number of the audit firm by which
the statutory auditor is employed, or with whom he or she is associated as a partner or otherwise ;
c) all other registration(s) as statutory auditor with the competent authorities of other Member States
and as auditor with third countries, including the name(s) of the registration authority(ies), and, if
applicable, the registration number(s).
2. Third country auditors registered in accordance with Article 45 shall clearly appear in the register
as such and not as statutory auditors.
Article 17
Registration of audit firms
1. As regards audit firms, the public register shall, at least, contain the following information:
a) name, address and registration number;b) legal form;
c) contact information, the primary contact person and, where applicable, the website address;
d) address of each office in the Member State;
e) name and registration number of all statutory auditors employed by or associated as partner or other-
wise with the audit firm;
f) names and business addresses of all owners and shareholders;
g) names and business addresses of all members of the administrative or management body;h) if applicable, the membership of a network and a list of the names and addresses of member firms and
affiliates or an indication of the place where such information is publicly available ;
i) all other registration(s) as audit firm with the competent authorities of other Member States and
as audit entity with third countries, including the name(s) of the registration authority(ies), and, ifapplicable, the registration number(s).
2. Third country audit entities registered in accordance with Article 45 shall clearly appear in the
register as such and not as audit firms.
Article 18
Update of registration information
Member States shall ensure that statutory auditors and audit firms notify without undue delay the compe-
tent authorities in charge of the public register about any change of information contained in the public
register. The register shall be updated without undue delay after notification.21.9.2006 C 227 E/444 Official Journal of the European Union
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Article 19
Responsibility for registration information
The information provided to the relevant competent authorities in accordance with Articles 16, 17 and
18shall be signed by the statutory auditor or audit firm. Where the competent authority provides for the
provision of the information electronically, this can for example be done by means of an electronic signa-
ture within the meaning of Article 2, point 1 of Directive 1999/93/EC of the European Parliament and of
the Council of 13 December 1999 on a Community framework for electronic signatures (1).
Article 20
Language
1. The information entered inthe public register shall be drawn up in one of the languages permitted
by the language rules applicable in the Member State concerned .
2. Member States may additionally allow the information to be entered inthe public register in any other
official language(s) of the Community. Member States may require the translation of the information to becertified.
In all cases, the Member State concerned shall ensure that the register indicates whether or not the translation
iscertified .
Chapter IV
Professional ethics , independence and professional secrecy
Article 21
Professional ethics
1. Member States shall ensure that all statutory auditors and audit firms are subject to principles of
professional ethics, covering at least their public interest function , their integrity and objectivity and their
professional competence and due care.
2. In order to ensure confidence in the audit function and in order to ensure uniform application of
paragraph 1, the Commission may , in accordance with the procedure referred to in Article 48(2), adopt
implementing measures concerning principles governing professional ethics .
Article 22
Independence and objectivity
1. Member States shall ensure that when carrying out a statutory audit, the statutory auditor and/or the
audit firm is independent from the audited entity and is not involved in the decision-taking of the audited
entity.
2. Member States shall ensure that a statutory auditor or an audit firm shall not carry out a statu-
tory audit if there is any direct or indirect financial, business, employment or other relationshipbetween the statutory auditor, audit firm or the network — including the provision of additional non-audit services — and the audited entity from which an objective, reasonable and informed third partywould conclude that the statutory auditor's or audit firm's independence is compromised. If the statu-tory auditor's or audit firm's independence is affected by threats, such as self review, self interest, advo-
cacy, familiarity or trust or intimidation, the statutory auditor or audit firm must apply safeguards in
order to mitigate those threats. If the significance of the threats compared to the safeguards applied issuch that the independence is compromised, the statutory auditor or audit firm shall not carry out thestatutory audit.21.9.2006 C 227 E/445 Official Journal of the European Union
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(1) OJ L 13, 19.1.2000, p. 12.
Member States shall in addition ensure that, where statutory audits of public interest entities are
concerned, a statutory auditor or an audit firm shall, where appropriate to safeguard the statutory audi-
tor's or audit firm's independence, not carry out a statutory audit in cases of self review or self interest.
3. Member States shall ensure that the statutory auditor or audit firm documents in the audit working
papers all significant threats to his, her or their independence as well as the safeguards applied to mitigate
those threats.
4. In order to ensure confidence in the audit function and in order to ensure uniform application of
paragraphs 1 and 2, the Commission may, in accordance with the procedure referred to in Article 48(2),adopt principle-based implementing measures concerning:
a) the threats and safeguards referred to in paragraph 3;
b) the situations in which the significance of the threats, as referred to in paragraph 3, is such that
the independence of the statutory auditor or audit firm is compromised;
c) the question whether statutory audits may or may not be carried out in the cases of self review and
self interest referred to in paragraph 2.
Article 23
Confidentiality and professional secrecy
1. Member States shall ensure that all information and documents to which the statutory auditor or
audit firm has access when carrying out a statutory audit are protected by adequate rules on confidentiality
and professional secrecy.
2. Confidentiality and professional secrecy rules relating to statutory auditors or audit firms shall not
impede enforcement of the provisions of this Directive.
3. Where a statutory auditor or audit firm is replaced by another statutory auditor or audit firm, the
former statutory auditor or audit firm shall provide access to all relevant information concerning theaudited entity to the incoming statutory auditor or audit firm.
4. A statutory auditor or audit firm who has ceased to be engaged in a particular audit assignment
or a former statutory auditor or audit firm shall remain subject to the provisions of paragraphs 1 and 2with respect to that audit assignment.
Article 24
Independence and objectivity of the statutory auditors carrying out
the statutory audit on behalf of audit firms
Member States shall ensure that the owners or shareholders of an audit firm as well as the members of the
administrative, management and supervisory bodies of such a firm, or ofan affiliated firm ,do not intervene
in the execution of a statutory audit in any way which jeopardises the independence and objectivity of the
statutory auditor who carries out the statutory audit on behalf of the audit firm.
Article 25
Audit fees
Member States shall ensure that adequate rules are in place which provide that fees for statutory audits :
a) are not influenced or determined by the provision of additional services to the audited entity;
b) cannot be based on any form of contingency.21.9.2006 C 227 E/446 Official Journal of the European Union
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Chapter V
Auditing standards and audit reporting
Article 26
Auditing standards
1. Member States shall require statutory auditors and audit firms to carry out statutory audits in accord-
ance with international auditing standards adopted by the Commission in accordance with the procedure
referred to in Article 48(2) .Member States may apply a national auditing standard as long as the
Commission has not adopted an international auditing standard covering the same subject-matter.Adopted international auditing standards shall be published in full in each of the official languages ofthe Community in the Official Journal of the European Union.
2. The Commission may decide in accordance with the procedure referred to in Article 48(2) on the
applicability within the Community of international auditing standards. The Commission shall only
adopt international auditing standards for application in the Community if they:
a) are generally accepted internationally and are developed with proper due process, public oversight and
transparency; and
b) contribute a high level of credibility and quality to the annual or consolidated accounts in conformity
with the principles set out in Article 2(3) of Directive 78/660/EEC and in Article 16(3) of Directive
83/349/EEC; and
c) are conducive to the European public good.
3. Member States may only impose audit procedures or requirements in addition to — or, in excep-
tional cases, by carving out — parts of the international auditing standards if these follow from specific
national legal requirements relating to the scope of the statutory audit. Member States shall ensure that
these audit procedures or requirements comply with the provisions laid down in paragraph 2, points (b)and (c) and shall communicate these to the Commission and Member States before their adoption. In
the exceptional case of carving out parts of an international auditing standard, Member States shall
communicate their specific national legal requirements, as well as the grounds for maintaining them, tothe Commission and the other Member States at least six months before its national adoption or, in thecase of requirements already existing at the time of adoption of an international auditing standard, atthe latest within three months after adoption of the relevant international auditing standard .
4. Member States may impose additional requirements relating to the statutory audit of annual and
consolidated accounts for a period of two years after the deadline for transposition laid down in Article
53(1) has elapsed.
Article 27
Statutory audit of consolidated accounts
Member States shall ensure that in the case of a statutory audit of consolidated accounts of a group of
undertakings:
a) the group auditor bears the full responsibility for the audit report in relation with the consolidated
accounts;
b) the group auditor carries out a review and maintains documentation of his or her review of the audit
work performed by third country auditor(s), statutory auditor(s), third country audit entity(ies) or
audit firm(s) for the purpose of the group audit. The documentation retained by the group auditor
shall be adequate for the relevant competent authority to properly review the work of the group
auditor ;21.9.2006 C 227 E/447 Official Journal of the European Union
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c) when a component of agroup of undertakings is audited by auditor(s) or audit entity(s) from a
third country that has no cooperation agreement as referred to in Article 47 , the group auditor is
responsible for ensuring proper delivery when requested to the public oversight authorities of thedocumentation of the audit work performed by the third country auditor(s) or audit entity(ies),including the working papers relevant for the group audit. To ensure such delivery, the groupauditor shall retain a copy of such documentation , or alternatively agree with the third country
auditor(s) or audit entity(ies) his proper and unrestricted access upon request or take any other
appropriate action. If legal or other impediments prevent audit working papers from being passedfrom a third country to the group auditor, the documentation retained by the group auditor shallinclude evidence that he or she has undertaken the appropriate procedures in order to gain access tothe audit documentation, and in the case of impediments other than legal ones arising from countrylegislation, evidence supporting such impediment .
Article 28
Audit reporting
1. Where an audit firm carries out the statutory audit, the audit report shall be signed at least by the
statutory auditor(s) carrying out the statutory audit on behalf of the audit firm. In exceptional circum-
stances Member States may provide that this signature need not be disclosed to the public if such disclo-
sure could lead to an imminent and significant threat to the personal security of any person. In anycase the name(s) of the person(s) involved shall be known to the relevant competent authorities.
2. Notwithstanding Article 51a(1) of Directive 78/660/EEC and in the event that the Commission
has not adopted a common standard audit report in accordance with Article 26(1), the Commission
may, in accordance with the procedure referred to in Article 48(2) , in order to enhance public confidence
in the audit function, adopt a common standard audit report for annual or consolidated accounts which
have been prepared in accordance with approved international accounting standards.
Chapter VI
Quality assurance
Article 29
Quality assurance systems
1. Member States shall ensure that all statutory auditors and audit firms are subject to a system of
quality assurance which meets at least the following criteria:
a) the quality assurance system must be organised in such a manner that it is independent from the
reviewed statutory auditors and audit firms and subject to public oversight as described in ChapterVIII;
b) the funding for the quality assurance system must be secure and free from any possible undue influ-
ence by statutory auditors or audit firms;
c) the quality assurance system must have adequate resources;
d) persons who carry out the quality assurance reviews must have appropriate professional education
and relevant experience in statutory audit and financial reporting combined with specific training onquality assurance reviews;
e) the selection of reviewers for specific quality assurance review assignments must be made under an
objective procedure designed to ensure that there are no conflicts of interest between the reviewers
and the statutory auditor or audit firm under review;21.9.2006 C 227 E/448 Official Journal of the European Union
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f) the scope of the quality assurance review , supported by adequate testing of selected audit files, must
include an assessment of the compliance with applicable auditing standards and independence require-
ments , of the quantity and quality of resources spent, of the audit fees charged and of the internal
quality control system of the audit firm ;
g) the quality assurance review must result in the establishment of a report which contains the main
conclusions of the quality assurance review;
h) quality assurance reviews must take place at least every six years;i) the overall results of the quality assurance system must be published annually;j) recommendations of quality reviews shall be followed up by the statutory auditor or audit firm within
a reasonable period.
Inthe event that the recommendations referred to in point (j) are not followed up, the statutory auditor or
audit firm shall , if applicable, be subject to the system of disciplinary actions or sanctions as referred to in
Article 30.
2. The Commission may adopt, in accordance with the procedure referred to in Article 48(2) , imple-
menting measures in order to enhance public confidence in the audit function and to ensure uniform
application of paragraph 1, points (a), (b) and (e) to (j) .
Chapter VII
Investigations and sanctions
Article 30
Systems of investigations and sanctions
1. Member States shall ensure that there are effective systems of investigations and sanctions to detect,
correct and prevent inadequate execution of the statutory audit.
2. Without prejudice to Member States' civil liability regimes, Member States shall provide effective,
proportionate and dissuasive sanctions in respect of statutory auditors and audit firms, where statutory
audits are not carried out in conformity with the provisions adopted in the implementation of this Direc-
tive.
3. Member States shall provide that measures taken or sanctions imposed on statutory auditors and
audit firms are appropriately disclosed to the public. Sanctions should include the possibility of the with-
drawal of approval .
Article 31
Auditors' liability
The Commission shall before the end of 2006 present a report on the impact of the current national
liability rules for carrying out statutory audits on the European capital markets and on the insuranceconditions for statutory auditors and audit firms, including an objective analysis of the limitations of
financial liability. The Commission shall, where appropriate, carry out a public consultation. In the
light of that report, the Commission shall, if it considers it appropriate, submit recommendations to theMember States.
Chapter VIII
Public oversight and regulatory arrangements between Member States
Article 32
Principles of public oversight
1. Member States shall organise an effective system of public oversight for statutory auditors and audit
firms based on theprinciples set out in paragraphs 2 to 7.21.9.2006 C 227 E/449 Official Journal of the European Union
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2. All statutory auditors and audit firms must be subject to public oversight.
3. The system of public oversight must be governed by non-practitioners who are knowledgeable in the
areas relevant to statutory audit. Member States may however allow a minority of practitioners to beinvolved in the governance of the public oversight system. Persons involved in the governance of the
public oversight system must be selected under an independent and transparent nomination procedure.
4. The system of public oversight must have the ultimate responsibility for the oversight of:
a) the approval and registration of statutory auditors and audit firms, andb) the adoption of standards on ethics, internal quality control of audit firms and auditing, and
c) continuous education, quality assurance and investigative and disciplinary systems.
5. The system of public oversight must have the right, where necessary, to conduct investigations in
relation to statutory auditors and audit firms and must have the right to take appropriate action.
6. The system of public oversight must be transparent. This shall include the publication of annual
work programmes and activity reports.
7. The system of public oversight must be adequately funded. The funding for the public oversight
system must be secure and free from any undue influence by statutory auditors or audit firms.
Article 33
Cooperation between public oversight systems at Community level
Member States shall ensure that regulatory arrangements for systems of public oversight permit effective
cooperation at Community level between oversight activities of Member States. To that extent, MemberStates shall make one entity specifically responsible for ensuring the cooperation .
Article 34
Mutual recognition of regulatory arrangements between Member
States
1. Regulatory arrangements of Member States shall respect the principle of home country regulation
and oversight by the Member State in which the statutory auditor or audit firm is approved and theaudited entity has its registered office.
2. In the case of a statutory audit of consolidated accounts, the Member State requiring the statutory
audit of the consolidated accounts may not impose additional requirements in relation to the statutory audit
concerning registration, quality assurance review, auditing standards, ethics and independence on a statu-tory auditor or audit firm carrying out a statutory audit of a subsidiary established in another MemberState.
3. In the case of a company whose securities are traded on a regulated market in aMember State other
than that in which the company has its registered office, the Member State where the securities are traded
may not impose any additional requirements in relation to the statutory audit concerning registration,quality assurance review, auditing standards, ethics and independence on a statutory auditor or audit firm
carrying out the statutory audit of the annual or consolidated accounts of the company.
Article 35
Designation of competent authorities
1. Member States shall designate one or more competent authorities for the purposes of the tasks
provided for in this Directive. Member States shall inform the Commission of their designation.
2. The competent authorities should be organised in such a manner that conflicts of interests are
avoided.21.9.2006 C 227 E/450 Official Journal of the European Union
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Article 36
Professional secrecy and regulatory cooperation between Member States
1. The competent authorities of Member States responsible for approval, registration, quality assur-
ance, inspection and discipline shall cooperate with each other whenever necessary for the purpose of
carrying out their respective responsibilities under this Directive. The competent authorities in a Member
State responsible for approval, registration, quality assurance, inspection and discipline shall render
assistance to competent authorities inother Member States. In particular, competent authorities shall
exchange information and cooperate ininvestigations related to the carrying-out of statutory audits.
2. The obligation of professional secrecy shall apply to all persons who work or who have worked for
competent authorities. Information covered by professional secrecy may not be disclosed to any otherperson or authority except by virtue of law, regulation or administrative procedures of a Member State.
3. Paragraph 2 shall not prevent competent authorities from exchanging confidential information.
Information thus exchanged shall be covered by the obligation of professional secrecy, to which personsemployed or formerly employed by competent authorities are subject.
4. Competent authorities shall, on request, and without undue delay, supply any information required
for the purpose referred to in paragraph 1. Where necessary, the competent authorities receiving any
such request shall without undue delay take the necessary measures in order to gather the required
information. If the requested competent authority is not able to supply the required informationwithout undue delay it shall notify the requesting competent authority of the reasons. Information thussupplied shall be covered by the obligation of professional secrecy to which the persons employed orformerly employed by the competent authorities that received the information are subject.
The competent authorities may refuse to act on a request for information where:
a) communication might adversely affect the sovereignty, security or public order of the State
addressed or breach national security rules; or
b) judicial proceedings have already been initiated in respect of the same actions and against the same
statutory auditors and audit firms before the authorities of the State addressed; or
c) final judgment has already been passed on such persons for the same actions by the competent
authorities of the State addressed.
Without prejudice to the obligations to which they are subject in judicial proceedings, the authorities
which receive information pursuant to paragraph 1 may use it only for the exercise of their functionswithin the scope of this Directive and in the context of administrative or judicial proceedings specifi-cally related to the exercise of those functions.
5. Where a competent authority is convinced that activities contrary to the provisions of this Direc-
tive are being or have been carried out on the territory of another Member State, it shall communicateand notify this in as specific a manner as possible to the competent authority of the other MemberState. The competent authority of the other Member State shall take appropriate action. It shall informthe notifying competent authority of the outcome and, to the extent possible, of significant interim
developments.
6. A competent authority of one Member State may also request that an investigation be carried out
by the competent authority of another Member State, on the latter's territory.
It may further request that some of its own personnel be allowed to accompany the personnel of the
competent authority of that other Member State during the course of the investigation.
The investigation shall be subject throughout to the overall control of the Member State on whose terri-
tory it is conducted.21.9.2006 C 227 E/451 Official Journal of the European Union
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The competent authorities may refuse to act on a request for the carrying-out of an investigation as
provided for in the first subparagraph, or on a request for its personnel to be accompanied by personnel
of a competent authority of another Member State as provided for in the second subparagraph, wheresuch an investigation might adversely affect the sovereignty, security or public order of the Stateaddressed, or where judicial proceedings have already been initiated in respect of the same actions andagainst the same persons before the authorities of the State addressed or where final judgment has
already been passed on such persons for the same actions by the competent authorities of the State
addressed.
7. The Commission may adopt, in accordance with the procedure referred to in Article 48(2), imple-
menting measures in order to facilitate cooperation between competent authorities on the procedures ofexchange of information and modalities for cross-border investigations provided for in paragraphs 2 to 4.
Chapter IX
Appointment, dismissal and communication
Article 37
Appointment of statutory auditors or audit firms
1. The statutory auditor or audit firm shall be appointed by the general meeting of shareholders or
members of the audited entity.
2. Member States may allow alternative systems or modalities for the appointment of the statutory
auditor or audit firm provided that those systems or modalities are designed to ensure the independenceof the statutory auditor or audit firm from the executive members of the administrative body or from
the managerial body of the audited entity.
Article 38
Dismissal and resignation of statutory auditors or audit firms
1. Member States shall ensure that statutory auditors or audit firms may only be dismissed where there
are proper grounds; divergence of opinions on accounting treatments or audit procedures shall not be aproper ground for dismissal.
2. Member States shall ensure that the audited entity and the statutory auditor or audit firm inform
the authority or authorities responsible for public oversight about the dismissal or resignation during the
term of appointment and give an adequate explanation of the reasons therefor .
Article 39
Application to non-listed public interest entities
Member States may exempt public interest entities which have not issued transferable securities
admitted to trading on a regulated market within the meaning of Article 4(1), point 18 of Directive
2004/39/EC, and their statutory auditor(s) or audit firm(s), from one or more of the requirements in
this chapter.21.9.2006 C 227 E/452 Official Journal of the European Union
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Chapter X
Special provisions for the statutory audit of public interest entities
Article 40
Transparency report
1. Member States shall ensure that statutory auditors or audit firms that carry out statutory audit(s) of
public interest entities publish on their website , within three months of the end of each financial year, an
annual transparency report that includes at least the following:
a) a description of the legal structure and ownership;
b) where the audit firm belongs to a network, a description of the network and the legal and structural
arrangements in the network;
c) a description of the governance structure of the audit firm;
d) a description of the internal quality control system of the audit firm and a statement by the administra-
tive or management body on the effectiveness of its functioning;
e) an indication of when the last quality assurance review referred to in Article 29 took place;
f) a listing of public interest entities for which a statutory audit has been carried out during the last year
by the audit firm;
g) a statement about the audit firm's independence practices which also confirms that an internal review
of independence compliance has been conducted;
h) a statement on the policy followed by the audit firm concerning continuous education of statutory
auditors asreferred to in Article 13;
i) financial information showing the importance of the audit firm such as the total turnover divided into
fees from the statutory audit of annual and consolidated accounts, and fees charged for other assurance
services, tax advisory services and other non-audit services;
j) information about the basis for the partner remuneration.
Member States may in exceptional circumstances disapply the requirement in point (f) to the extent
necessary to mitigate an imminent and significant threat to the personal security of any person.
2. The transparency report shall be signed by the statutory auditor or audit firm , as the case may be .
This can for example be done by means of an electronic signature within the meaning of Article 2(1) of
Directive 1999/93/EC .
Article 41
Audit committee
1. Public interest entities shall have an audit committee . Member States shall determine whether the
audit committee is to be composed of non-executive members of the administrative body and/or members
of the supervisory body of the audited entity and/or of members that are appointed by the general
meeting of shareholders of the audited entity. At least one member of the audit committee shall be inde-
pendent and shall have competence in accounting and/or auditing.
In public interest entities which meet the criteria of Article 2(1), point (f), of Directive 2003/71/EC (1),
Member States may permit the functions assigned to the audit committee to be performed by the admin-
istrative or supervisory body as a whole, provided at least that when the chairman of such body is an
executive member, he or she is not the chairman of the audit committee.21.9.2006 C 227 E/453 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1)Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to
be published when securities are offered to the public or admitted to trading ( OJ L 345, 31.12.2003, p. 64).
2. Without prejudice to the responsibility of the members of the administrative, management or
supervisory bodies, or of other members that are appointed by the general meeting of shareholders of
the audited entity, the audit committee shall inter alia:
a) monitor the financial reporting process;b) monitor the effectiveness of the company's internal control, internal audit where applicable, and risk
management systems;
c) monitor the statutory audit of the annual and consolidated accounts;
d) review and monitor the independence of the statutory auditor or audit firm and in particular the
provision of additional services to the audited entity.
3. In public interest entities, the proposal of the administrative or supervisory body for the appoint-
ment of a statutory auditor or audit firm shall be based on a recommendation made by the auditcommittee.
4. The statutory auditor or audit firm must report to the audit committee on key matters arising
from the statutory audit, in particular on material weaknesses in internal control in relation to thefinancial reporting process.
5. Member States may allow or decide that the provisions laid down in paragraphs 1 to 4 shall not
apply to public interest entities that have a body performing equivalent functions to an audit committee,
established and functioning according to provisions in place in the Member State where the entity to be
audited is registered. In such a case the entity shall disclose which body carries out these functions andhow it is composed.
6. Member States may exempt from the obligation to have an audit committee:
a) public interest entities which are subsidiary undertakings as defined in Article 1 of Directive
83/349/EEC if the company complies with the requirements in paragraphs 1 to 4 at group level;
b) public interest entities which are collective investment undertakings within the meaning of Article
1(2) of Directive 85/611/EEC; Member States may also exempt public interest entities the soleobject of which is the collective investment of capital provided by the public, which operate on theprinciple of risk spreading and which do not seek to take legal or management control over any ofthe issuers of its underlying investments provided that those collective investment undertakings are
authorised and subject to supervision by competent authorities and that they have a depositary
exercising functions equivalent to those under Directive 85/611/EEC;
c) public interest entities the sole business of which is to act as issuer of asset-backed securities as
defined in Article 2(5) of Commission Regulation (EC) No 809/2004 of 29 April 2004 imple-menting Directive 2003/71/EC (
1); in such instances, Member States shall require the entity to
explain to the public the reasons for which it considers it not appropriate to have either an audit
committee or an administrative or supervisory body entrusted to carry out the functions of an auditcommittee;
d) credit institutions within the meaning of Article 1(1) of Directive 2000/12/EC whose shares are
not admitted to trading on a regulated market of any Member State within the meaning of Article
4(1), point 18 of Directive 2004/39/EC and which have, in a continuous or repeated manner, only
issued debt securities provided that the total nominal amount of all such debt securities remainsbelow 100 000 000 Euro and that they have not published a prospectus under Directive2003/71/EC.21.9.2006 C 227 E/454 Official Journal of the European Union
Wednesday, 28 September 2005EN
(1) OJ L 149, 30.4.2004, p. 1.
Article 42
Independence
1. In addition to the provisions laid down in Articles 22 and 24 ,Member States shall ensure that statu-
tory auditors or audit firms that carry out statutory audits of public interest entities :
a) annually confirm in writing to the audit committee their independence from the audited public
interest entity ;
b) annually disclose to the audit committee any additional services provided to the audited entity; and
c) discuss with the audit committee the threats to their independence and the safeguards applied to
mitigate those threats as documented by them pursuant to Article 22(3).
2. Member States shall ensure that the key audit partner(s) responsible for carrying out the statutory
audit rotate(s) from the audit engagement within a maximum period of seven years after the date ofappointment and is/are allowed to participate in the audit of the audited entity again after a period ofat least two years.
3. The statutory auditor or the key audit partner who carries out the statutory audit on behalf of an
audit firm shall not be allowed to take up a key management position in the audited entity before aperiod of at least two years has elapsed since he or she resigned as a statutory auditor or key auditpartner from the audit engagement.
Article 43
Quality assurance
The quality review referred to in Article 29 must be carried out at least every three years for statutory audi-
tors or audit firms that carry out statutory audits of public interest entities .
Chapter XI
International aspects
Article 44
Approval of auditors from third countries
1. On the condition of reciprocity, the competent authorities of a Member State may approve a third
country auditor as statutory auditor if the person has furnished proof that he or she complies with
requirements equivalent to those provided for in Articles 4 and 6 to 13.
2. The competent authorities of a Member State shall, before granting approval to a third country
auditor who meets the requirements of paragraph 1, apply the requirements laid down in Article 14.
Article 45
Registration and oversight of third country auditors and audit entities
1. The competent authorities of a Member State shall register in accordance with Articles 15 to 17 all
third country auditors and audit entities which provide an audit report concerning the annual or consoli-
dated accounts of a company incorporated outside the Community and whose transferable securities are
admitted to trading on a regulated market of that Member State within the meaning of Article 4(1), point
18 of Directive 2004/39/EC except when the company is an issuer exclusively of debt securities
admitted to trading on a regulated market in a Member State within the meaning of Article 2(1)b ofDirective 2004/109/EC (
1)(Transparency), the denomination per unit of which is at least 50 000 Euro
or, in case of debt securities denominated in another currency, equivalent, at the date of the issue, to atleast 50 000 Euro.21.9.2006 C 227 E/455 Official Journal of the European Union
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(1)Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisa-
tion of transparency requirements in relation to information about issuers whose securities are admitted to
trading on a regulated market ( OJ L 390, 31.12.2004, p. 38).
2. Articles 18and 19 shall apply.
3. Member States shall subject registered third country auditors and audit entities to their system of
oversight, their quality assurance system and their systems of investigations and sanctions. Member States
may exempt registered third country auditors and audit entities from being subject to their quality
assurance system if another Member State, or a third country's system of quality assurance that hasbeen assessed as equivalent in accordance with Article 46, has already carried out a quality review ofthe third country auditor or audit entity during the previous three years.
4. Without prejudice to Article 46, audit reports concerning annual accounts or consolidated accounts
referred to in paragraph 1 issued by third country auditors or audit entities that are not registered in the
Member State shall not have legal effect in that Member State.
5. Member States may only register third country audit entities if:
a) they meet requirements which are equivalent to those of Article 3(3);
b) the majority of the members of the administrative or management body of the third country audit
entity meet requirements which are equivalent to those of Articles 4 to 10;
c) the third country auditor carrying out the audit on behalf of the third country audit entity meets
requirements which are equivalent to those of Articles 4 to 10;
d) the audits of the annual or consolidated accounts referred to in paragraph 1 are carried out in accord-
ance with international auditing standards as referred to in Article 26, as well as the requirements laid
down in Articles 22, 24 and 25, or with equivalent standards and requirements ;
e) they publish on their website an annual transparency report which includes the information referred
to in Article 40 or they comply with equivalent disclosure requirements .
6. In order to ensure uniform application of paragraph 5, point (d), the equivalence referred to
therein shall be assessed by the Commission in cooperation with Member States and shall be decidedupon by the Commission in accordance with the procedure referred to in Article 48(2). Pending such adecision by the Commission, Member States may assess the equivalence referred to in paragraph 1 aslong as the Commission has not taken any decision.
Article 46
Derogation in the case of equivalence
1. Member States may disapply or modify the requirements in Article 45(1) and (3) on the basis of reci-
procity only if these third country audit entities or third country auditors are subject to systems of public
oversight, quality assurance and investigations and sanctions in the third country that meet requirements
equivalent to those of Articles 29, 30 and 31.
2. In order to ensure uniform application of paragraph 1, the equivalence referred to therein shall be
assessed by the Commission in cooperation with Member States and shall be decided upon by theCommission in accordance with the procedure referred to in Article 48(2). Member States may assessthe equivalence referred to in paragraph 1 or rely on the assessments carried out by other MemberStates as long as the Commission has not taken any decision. If the Commission decides that the
requirement of equivalence referred to in paragraph 1 is not complied with, it may allow the audit enti-
ties concerned to continue their audit activities in accordance with the relevant Member State's require-ments during an appropriate transitional period.
3. Member States shall communicate to the Commission:
a) their assessment of the equivalence referred to in paragraph 2; andb) the main elements of the cooperative arrangements with third country systems of public oversight,
quality assurance and investigations and sanctions, on the basis of paragraph 1.21.9.2006 C 227 E/456 Official Journal of the European Union
Wednesday, 28 September 2005EN
Article 47
Cooperation with competent authorities from third countries
1. Member States may allow the transfer to the competent authorities of a third country of audit
working papers or other documents held by statutory auditors or audit firms approved by them, providedthat:
a) these audit working papers or other documents relate to audits of companies which have issued securi-
ties in that third country or which form part of a group issuing statutory consolidated accounts in
that third country ;
b) the transfer takes place via the home competent authorities to the competent authorities of that third
country and upon their request;
c) the competent authorities of the third country concerned meet requirements which have been declared
adequate in accordance with paragraph 3;
d) there are working arrangements on the basis of reciprocity agreed between the competent authorities
concerned ;
e) the transfer of personal data to the third country is in accordance with Chapter IV of Directive
95/46/EC.
2. The working arrangements referred to in paragraph 1, point (d) shall ensure that:
a) justification is provided by the competent authorities of the purpose of the request for audit working
papers and other documents;
b) the persons employed or formerly employed by the competent authorities of the third country that
receive the information are subject to obligations of professional secrecy;
c) the competent authorities of the third country may use audit working papers and documents only for
the exercise of their functions of public oversight, quality assurance and investigations that meet
requirements equivalent to those of Articles 29, 30 and 32;
d) the request from a competent authority of a third country for audit working papers or other docu-
ments held by a statutory auditor or audit firm can be refused where the provision of those workingpapers or documents would adversely affect the sovereignty, security or public order of the Com-munity or of the Member State concerned, or where judicial proceedings have already been initiated in
respect of the same actions and against the same persons before the authorities of the Member State
concerned.
3. The adequacy referred to in paragraph 1, point (c)shall be decided upon by the Commission in
accordance with the procedure referred to in Article 48(2) in order to facilitate cooperation between
competent authorities . The assessment of adequacy shall be carried out in cooperation with Member States
and be based on the requirements of Article 36 or essentially equivalent functional results. Member States
shall take the measures necessary to comply with the Commission's decision.
4. In exceptional cases and by way of derogation from paragraph 1, Member States may allow statutory
auditors and audit firms approved by them to transfer audit working papers and other documents directlyto the competent authorities of a third country, provided that:
a) investigations have been initiated by the competent authorities in that third country;
b) the transfer does not conflict with the obligations with which statutory auditors and audit firms are
required tocomply in relation to the transfer of audit working papers and other documents to their
home competent authority;
c) there are working arrangements with the competent authorities of that third country that allow the
competent authorities in the Member State reciprocal direct access to audit working papers and otherdocuments of audit firms;
d) the requesting competent authority of the third country informs in advance the home competent
authority of the statutory auditor or audit firm of each direct request for information, indicating the
reasons therefor ;
e) the conditions referred to in paragraph 2 are respected.21.9.2006 C 227 E/457 Official Journal of the European Union
Wednesday, 28 September 2005EN
5. The Commission may, in accordance with the procedure referred to in Article 48(2) ,specify the
exceptional cases referred to in paragraph 4 in order to facilitate cooperation between competent authori-
ties and to ensure the uniform application of that paragraph .
6. Member States shall communicate to the Commission the working arrangements referred to in para-
graphs 1 and 4.
Chapter XII
Transitional and final provisions
Article 48
Committee
1. The Commission shall be assisted by an audit regulatory committee (hereinafter referred to as the
Committee) composed of representatives of the Member States and chaired by a representative of the
Commission.
2. Where reference is made to this paragraph the regulatory procedure laid down in Articles 5 and 7 of
Decision 1999/468/EC shall apply, having regard to Article 8 thereof.
The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months.3. Without prejudice to the implementing measures already adopted, and except for the provisions in
Article 26, upon expiry of a two-year period following the adoption of this Directive and on 1 April
2008 at the latest, the application of its provisions requiring the adoption of technical rules, amend-
ments and decisions in accordance with paragraph 2 shall be suspended. Acting on a proposal from theCommission, the European Parliament and the Council may renew the provisions concerned in accord-ance with the procedure laid down in Article 251 of the Treaty and to that end they shall review themprior to the expiry of the period or date referred to above.
4. The Committee shall adopt its Rules of Procedure.
Article 49
Amendment of Directive 78/660/EEC and Directive 83/349/EEC
1. Directive 78/660/EEC is amended as follows:
(a) In Article 43(1) the following point is added:
‘15) separately, the total fees for the financial year charged by the statutory auditor or audit firm for
the statutory audit of annual accounts ,the total fees charged for other assurance services, the
total fees charged for tax advisory services and the total fees charged for other non-audit
services.
Member States may provide that this requirement shall not apply where the company is
included within the consolidated accounts required to be drawn up under Article 1 of Directive
83/349/EEC, provided that such information is given in the notes to the consolidatedaccounts.’
(b) Article 44(1) shall be replaced by the following:
‘1. Member States may permit the companies referred to in Article 11 to draw up abridged notes
on their accounts without the information required in Article 43(1) , points (5) to (12), (14)(a) and (15).
However, the notes must disclose the information specified in Article 43(1) , point (6) in total for all
the items concerned.’
(c) Article 45(2) shall be replaced by the following:
‘2. Paragraph 1(b) shall also apply to the information specified in Article 43(1), point (8).
The Member States may permit the companies referred to in Article 27 to omit disclosure of the
information specified in Article 43(1), point (8). The Member States may also permit the companiesreferred to in Article 27 to omit disclosure of the information specified in Article 43(1), point (15),
provided that such information is delivered to the public oversight system referred to in Article 32
of [8th Company Law Directive] when requested by such a public oversight system.’21.9.2006 C 227 E/458 Official Journal of the European Union
Wednesday, 28 September 2005EN
2. In Article 34 of Directive 83/349/EEC the following point is added:
‘16) separately, the total fees for the financial year charged by the statutory auditor or audit firm for
the statutory audit of the consolidated accounts ,the total fees charged for other assurance
services, the total fees charged for tax advisory services and the total fees charged for other non-
audit services.’
Article 50
Repeal of Directive 84/253/EEC
Directive 84/253/EEC shall be repealed with effect from the date indicated in Article 54 . References to the
repealed Directive shall be construed as references to this Directive.
Article 51
Transitional provision
Statutory auditors or audit firms that are approved by the competent authorities of the Member States in
accordance with Directive 84/253/EEC before the entry into force of the provisions referred to in Article
53(1) shall be considered as having been approved in accordance with this Directive.
Article 52
Minimum harmonisation
Member States requiring statutory audit may impose more stringent requirements, unless otherwise
indicated in this Directive.
Article 53
Transposition
1. Member States shall adopt and publish within … (**) the provisions necessary to comply with this
Directive. They shall forthwith inform the Commission thereof.
2. When Member States adopt those provisions, they shall contain a reference to this Directive or be
accompanied by such a reference on the occasion of their official publication. Member States shall deter-
mine how such reference is to be made.
3. Member States shall communicate to the Commission the texts of the main provisions of national
law which they adopt in the field covered by this Directive.
Article 54
Entry into force
This Directive shall enter into force on the twentieth day following that of its publication in the Official
Journal of the European Union .
Article 55
This Directive is addressed to the Member States.Done at …
For the European Parliament
The PresidentFor the Council
The President
(**) 24 months after the entry into force of this Directive.21.9.2006 C 227 E/459 Official Journal of the European Union
Wednesday, 28 September 2005EN