WRITTEN QUESTION P-1472/03

by Wolfgang Ilgenfritz (NI) to the Commission

(23 April 2003)

Subject: Peer review of auditors in the EU

In Austria, pursuant to the Directive governing the exercise of the profession of auditor published in Volume I/02 of the Official Journal of the Chamber of Certified Public Accountants, all auditors must undergo a peer review even if they are not involved in auditing companies' annual accounts. This is stipulated in §14, in conjunction with §16(1), of the above Directive:

§14: All auditors, accountants and auditing and accounting firms must undergo an external peer review in accordance with the following provisions.

§16(1): Auditors, accountants and auditing and accounting firms must undergo an external peer review at least once every four years. As part of this review, the relevant quality control measures must be assessed.

§20 of the above Directive lays down the following transitional provisions:

1. The external peer review shall be introduced in stages.

2. As from 2002, all auditors, accountants and auditing and accounting firms which audit undertakings, credit institutes or insurance companies which are quoted on the stock market shall be required to undergo an external peer review.

3. As from 2003, this requirement shall apply to all auditors, accountants and auditing and accounting firms which carry out statutory end-of-year audits of the accounts of major corporations within the meaning of §221 of the Commercial Code and partnerships treated as equivalent to such corporations.

On the basis of the stipulation in §14 of the Directive governing the exercise of the profession of auditor that all auditors, etc. are required to undergo an external peer review, the transitional provision laid down in §20 is incomplete and is now to be amplified. As a result, all auditors, etc. will be required to undergo an external peer review every four years, even if they carry out no auditing work.

1. Are there EU Member States other than Austria in which auditors are subject to peer review even if they do not audit companies' annual accounts?

2. Would it be consistent with the recommendation issued by the European Commission on 15 November 2000 (minimum requirements governing quality control systems in connection with auditing in the EU) if Austria were to lay down a 10-year peer review cycle for auditors, accountants and auditing and accounting firms which audit only the annual accounts of small, low-risk undertakings, if they carry out such work at all, and were to apply that rule to auditors, etc. which audit only medium-sized corporations (§221(2) of the Commercial Code) (text of the relevant provision attached)?

Answer given by Mr Bolkestein on behalf of the Commission

(26 May 2003)

The Commission recommendation of 15 November 2000 relating to minimum requirements governing quality control systems in connection with statutory auditing stipulates that, after three years, Member States must carry out a review.

This review will be carried out in 2003. The arrangements for this forthcoming exercise were already discussed in November 2002 by the European Committee on Auditing, which adopted other implementing measures in March 2003. Here all Member States were requested to report in writing to the Commission by 31 May 2003 on the situation as regards the implementation of the recommendation. The review will undoubtedly also address the question of whether all accountants, including those who do not generally carry out auditing work, are fully subject to quality control measures.

Quality control is the main instrument available to the profession to show the general public and supervisory authorities that the work of auditing and accounting firms meets the requirements of auditing standards and professional ethics. The review also encourages the profession to improve quality.

The recommendation, as such, is not binding on the Member States. It is thus for each one of them to regulate quality control of statutory auditing as it sees fit in accordance with the recommendation and to take the measures it deems necessary. The recommendation states that all persons who carry out statutory audits must be subject to quality control procedures, but nevertheless, it lays down that the Member State can, in the case of auditors whose clients do not include bodies of general interest clients, relax the rules with regard to certain aspects, in particular, the frequency of reviews, which can be just once every ten years.