Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on specific requirements regarding statutory audit of public-interest entities
Date: 2011-11-30
Institutions: European Commission
Subjects: audit, auditing, confidentiality, conflict of interest, financial control, large business, legal status, management audit, market supervision, professional secret, quality label, transparency in decision-making

EUROPEAN COMMISSION 

Brussels, 30.11.2011 
COM(2011) 779 final 

2011/0359 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on specific requirements regarding statutory audit of public-interest entities 

(Text with EEA relevance) 

{SEC(2011) 1384 final} 
{SEC(2011) 1385 final} 

 
 
  
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

The measures adopted both in Europe and elsewhere in the direct aftermath of the financial 
crisis have mainly focused on the urgent need to stabilise the financial system. While the role 
played  by  banks,  hedge  funds,  rating  agencies,  supervisors  or  central  banks  has  been 
questioned and analysed in depth in many instances, little or no attention had been given to 
the role auditors played in the crisis – or indeed the role they should have played. Given that 
many banks revealed huge losses from 2007 to 2009 on the positions they had held both on 
and off balance sheet, it is difficult for many citizens and investors to understand how auditors 
could give clean audit reports to their clients (in particular banks) for those periods.  

It  is  important  to  note  that  in  a  crisis  where  €4 588.9  billion  of  taxpayer  money  was 
committed  to  support  banks  between  October  2008  and  October  2009  and  where  such  aid 
accounted for 39% of EU 27 GDP in 20091, all components of the financial system need to be 
improved.  

Robust audit is key to re-establishing trust and market confidence. It contributes to investor 
protection by providing easily accessible, cost-effective and trustworthy information about the 
financial  statements  of  companies.  It  also  potentially  reduces  the  cost  of  capital  for  audited 
companies by ensuring more transparency and reliability of financial statements.  

It is also important to stress that auditors are entrusted by law to conduct statutory audits of 
the  financial  statements  of  companies  which  enjoy  limited  liability  and/or  are  authorised  to 
provide  services  in  the  financial  sector.  This  entrustment  responds  to  the  fulfilment  of  a 
societal  role  in  offering  an  opinion  on  the  truth  and  fairness  of  the  financial  statements  of 
those companies. 

the  procedures  for 

Since  1984,  EU  rules  have  partially  regulated  statutory  audit  when  a  directive  (Directive 
1984/253/EEC)  harmonized 
the  approval  of  auditors.  Directive 
2006/43/EC  of  the  European  Parliament  and  of  the  Council  of  17  May  2006  on  statutory 
audits  of  annual  accounts  and  consolidated  accounts,  amending  Council  Directives 
78/660/EEC  and  83/349/EEC  and  repealing  Council  Directive  84/253/EEC  (hereinafter 
Directive  2006/43/EC)  was  adopted  in  2006  and  considerably  broadened  the  scope  of  the 
former Directive.  

The financial crisis has highlighted weaknesses in the statutory audit especially with regard to 
Public-Interest Entities (PIE), entities which are of significant public interest because of their 
business, their size, their number of employees or their corporate status is such that they have 
a wide range of stakeholders. Therefore, this proposal lays down conditions for carrying out 
the statutory audit on the financial statements of PIEs.  

1 

The large amounts of support approved under schemes can be explained by the fact that some Member 
States  adopted  blanket  guarantee  schemes  which  covered  all  their  banks'  debt.  Member  States  relied 
mainly  on  guarantee  measures.  €546.08  billion  (4 .5%  of  GDP)  was  approved  as  recapitalisation 
measures, of which Member States actually used about €141.5 billion in 2009. In the period between 
October  2008  and  October  2010  the  Commission  authorized  financial  crisis  measures  in  the  field  of 
State  aid  in  22  Member  States:  i.e.  all  Member  States  except  Bulgaria,  the  Czech  Republic,  Estonia, 
Malta and Romania. 

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2. 

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND 
IMPACT ASSESSMENTS 

The Commission conducted a consultation from 13 October to 8 December 20102. 

In  all,  almost  700  responses  from  various  stakeholders;  these  included  members  of  the 
profession, 
investors,  academics,  companies,  government  authorities, 
professional bodies and individuals were received.  

supervisors, 

The consultation has shown both an appetite for as well as resistance to change; stakeholders 
who  are  currently  well  established  are  particularly  opposed  to  changes.  On  the  other  hand, 
especially small and medium sized practitioners as well as investors concluded that the recent 
financial crisis highlighted serious shortcomings. A summary of public submissions received 
can be found on: 

http://ec.europa.eu/internal_market/consultations/docs/2010/audit/summary_responses_en.pdf 

In addition, a high level conference on audit held by the Commission on 10 February 20113 
allowed for a further exchange of views.  

The  European  Parliament  adopted  an  own-initiative  report  on  13  September  2011  on  this 
matter in reaction to the Commission's Green Paper and urges the Commission to ensure more 
transparency  and  competition  in  the  audit  market.4  The  European  Economic  and  Social 
Committee (EESC) adopted a similar report on 16 June 2011.5  

The issues were also brought to the attention of the Member States at the Financial Services 
Committee  meeting  of  16  May  2011  and  at  the  Audit  Regulatory  Committee  meeting  of 
24 June 2011. 

In  keeping  with  the  principles  of  'Better  Regulation',  the  Impact  Assessment  identifies  the 
various problem areas that may require regulatory action:  

• 

• 

• 

There is an expectation gap between what stakeholders expect of an audit and what 
auditors actually do.  

Independence  is  neither  assured  nor  demonstrable  in  a  paradigm  where  audit  has 
effectively  become  one  of  a  plethora  of  commercial  services.  The  lack  of  regular 
tendering of audit services and periodic rotation of audit firms has deprived audit of 
its key ethos: professional scepticism.  

Market concentration and lack of choice: The market is so polarised that rare is the 
occasion  when  the  auditor  of  a  PIE  is  not  a  'Big  Four'  firm.  In  the  majority  of 
Member States, the Big Four audit more than 85% of large listed companies.  

The impact assessment resulted in the following preferred policy options: 

2 

3 
4 
5 

European  Commission,  Green  Paper  on  Audit  Policy:  Lessons  from  the  Crisis,  COM  (2010)561, 
13.10.2010.  
http://ec.europa.eu/internal_market/accounting/conferenc_20110209_en.htm 
http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=en&procnum=INI/2011/2037 
COM(2010)561 final, OJ C 248, 25.8.2011, p. 92. 

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• 

• 

• 

• 

• 

The  scope  of  statutory  audit  should  be  clarified  and  specified  and  the  information 
that  the  auditor  provides  to  users,  the  audited  entities,  audit  committees  and 
supervisors improved. 

The prohibition of the provision of non-audit services to the audited entities and even 
the  prohibition  of  the  provision  of  non-audit  services  in  general  would  effectively 
address  the  need  to  reinforce  independence  and  professional  scepticism.  Moreover, 
stricter rules in the procedure for the appointment of auditors and the introduction of 
mandatory audit firm rotation would contribute to higher quality audits.  

To  facilitate  an  objective  choice  of  an  audit  provider,  contractual  clauses  limiting 
audit firm choice should be prohibited, the transparency on audit quality and on audit 
firms should be increased and an audit quality certification should be established. 

To increase the choice of audit providers ownership restrictions should be lifted. 

National  audit  supervisory  authorities  should  be  strengthened  and  an  EU-wide 
cooperation  within  the  European  Securities  and  Markets  Authority  (ESMA)  should 
be set up. 

The impact assessment report for this proposal can be found on: 

http://ec.europa.eu/internal_market/auditing/index_en.htm 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

3.1 

Legal basis 

The  existing  Directive  2006/43/EC  is  based  on  Article  50  TFEU.  The  establishment  related 
requirements (e.g. those requirements that deal with the approval/registration of auditors) and 
amendments thereto remain within the purvey of the Directive6. 

Specific additional requirements that deal with the conduct of a statutory audit of PIEs are set 
out in this regulation, based on Article 114 TFEU. 

3.2. 

Subsidiarity and proportionality 

So  far,  EU  rules  have  left  a  large  discretion  to  Member  States,  which  in  turn  have  largely 
relied  on  self-regulation  by  the  profession.  The  crisis  has  shown  that  self-regulation  is  not 
adequate when looking towards the future. Moreover, the problems highlighted in the Impact 
Assessment cannot be solved at a national level as important differences would emerge in the 
regulatory framework and this in turn would seriously undermine the single market. 

Given  the  interconnected  nature  of  securities  markets  and  financial  actors,  audit  should  be 
conducted  across  the  Union  within  a  harmonised  framework.  It  is  critical  that  the  role, 
independence of auditors and the market structure are dealt with at the level of the Union as 

6 

See  section  4.3  of  the  Explanatory  Memorandum  of  the  proposal  for  an  amendment  of  Directive 
2006/43/EC for more detailed information on the scope of each proposal. 

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PIEs in Europe often have cross-border activities. It is worth noting that legislation covering 
investor protection as well as financial institutions is already enacted at the level of the Union. 

Moreover,  a  coordinated  approach  at  the  level  of  the  Union,  supplemented  by  international 
support, would also lower the risk of regulatory arbitrage. 

The  proposal  respects  the  principle  of  proportionality  and  it  does  not  go  beyond  what  is 
necessary to achieve the objectives pursued. 

3.3. 

Detailed explanation of the proposal 

Articles 39 to 43 of Directive 2006/43/EC already deal with certain requirements which apply 
to  the  statutory  audit  of  PIEs.  Those  requirements  will  no  longer  be  comprised  in  the 
Directive, but integrated (and further developed) in this Regulation. 

A Regulation is a suitable and proportionate legal instrument to ensure high quality of audits 
of  PIEs.  The  direct  applicability  of  a  Regulation  offers  greater  legal  certainty.  Also,  the 
legislation  would  become  applicable  at  the  same  date  across  the  Union,  thus  avoiding 
problems associated with the late transpostion of legislation by Member States7. Furthermore, 
a regulation offers the highest degree of harmonisation: statutory audits would be carried out 
under substantially identical rules in all Member States.  

3.3.1.  Title I (subject matter, scope and definitions) 

The Regulation applies to auditors that carry out statutory audits of PIEs and to the audited 
PIEs, e. g. rules on the audit committee which a PIE is required to have.  

For  the  purpose  of  the  Regulation  the  definitions  that  apply  to  the  amended  Directive 
2006/43/EC  should  also  apply  here.  As  the  financial  sector  evolves,  new  categories  of 
financial institutions are created under Union law and it is thus appropriate that the definition 
of PIEs also encompasses investment firms, payment institutions, undertakings for collective 
investment  in  transferable  securities  (UCITS),  electronic  money  institutions  and  alternative 
investment funds. 

3.3.2.  Title II (Conditions for carrying out statutory audit of public-interest entities) 

Chapter I (Independence and avoidance of conflict of interest) 

An auditor should establish adequate policies and procedures to ensure compliance with the 
obligations under the Regulation regarding independence, internal quality control systems and 
the supervision of employees.  

Former  auditors,  key  audit  partners  or  their  employees  are  not  allowed  to  take  up  a  key 
management position in the audited entity, to become a member of the audit committee of the 
audited entity, to become a non-executive member of the administrative body or to  join the 
supervisory  body  of  the  audited  entity  within  two  years  after  the  termination  of  the  audit 
engagement. 

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Subject, where appropriate, to adequate transitional arrangements.  

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The  fees  for  the  provision  of  related  financial  audit  services  to  the  audited  entity  should  be 
limited to 10 % of the audit fees paid by that entity. Additionally, where the total fees, audit 
and  related  financial  audit  services,  received  by  an  auditor  from  a  PIE  reach  a  significant 
percentage of his/her/its total annual fees, appropriate safeguards should be applied. 

The statutory auditor, audit firm or member of the audit firm's network will be prevented from 
providing  certain  non-audit  services  which  are  fundamentally  incompatible  with  the 
independent  public-interest  function  of  audit  to  their  audited  entities  in  all  cases,  while  for 
other non-services that are not fundamentally incompatible with the audit services, the audit 
committee or the competent authority will be empowered to assess, depending on the concrete 
circumstances, whether or not they may be provided to the audited entity.. However, related 
financial audit services could be provided. The Commission is empowered to adapt the lists of 
authorised  services  and  of  prohibited  services  in  accordance  with  the  conditions  set  out  in 
Title  VI.  In  addition,  audit  firms  of  significant  dimension  should  focus  their  professional 
activity  on  the  carrying  out  of  statutory  audit  and  should  not  be  allowed  to  undertake  non-
audit services.  

Before accepting or continuing an engagement, an auditor should assess all potential threats to 
his/her/its independence and confirm his/her independence to the audit committee.  

Chapter II (Confidentiality and professional secrecy) 

Auditors  should  not  invoke  professional  secrecy  rules  to  prevent  the  application  of  the 
provisions of this proposal.  

Article 13 ensures that necessary information can be exchanged during the performance of the 
audit.  However,  such  rules  would  not  allow  an  auditor  to  cooperate  with  third  country 
authorities outside the cooperation channels foreseen in Chapter XI of Directive 2006/43/EC.  

Chapter III (Performance of the statutory audit) 

The  Regulation  lays  out  that  the  auditor  should  take  the  necessary  steps  with  a  view  to 
forming an opinion as to whether the financial statements give a true and fair view and have 
been  prepared  in  accordance  with  the  relevant  financial  reporting  framework.  It  does  not 
include  the  assurance  on  the  future  viability  of  the  audited  entity  nor  the  efficiency  or 
effectiveness  with  which  the  management  or  the  administrative  body  has  conducted  or  will 
conduct the affairs of the entity. However, this exclusion should neither undermine the tasks 
that  an  auditor  needs  to  undertake  in  order  to  conduct  the  audit  properly  nor  any  reporting 
requirements. 

Professional scepticism is reinforced. The auditor should always remain alert to the possibilty 
of a material misstatement due to error or fraud, notwithstanding the auditor's past experience 
with the entity. 

Basic requirements for the performance of the statutory audit are established. The audit firm 
should designate at least a key audit partner, who should be actively involved in the carrying 
out  of  the  statutory  audit.  Sufficient  resources  should  be  assigned  as  well.  A  client  account 
record should be maintained and an audit file should be created. Moreover, the auditor should 
make sure that all the organisational requirements are properly applied.  

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Where  an  incident  which  has  or  may  have  serious  consequences  for  the  integrity  of  the 
statutory audit activities happens, the auditor should take appropriate measures with a view to 
managing the consequences of the incident and prevent any recurrence.  

In the case of the audit of consolidated financial statements, where the group auditor is not in 
the  position  to  document  the  audit  work  performed  by  third-country  auditor(s),  he  needs  to 
take  appropriate  measures  including  additional  audit  work  and  inform  the  competent 
authority.  

An  auditor/audit  firm  should  carry  out  its  own  internal  quality  control  review  before 
submitting the audit report. The review should be the responsibility of an auditor who is not 
involved in the performance of the statutory audit to which the internal quality review relates. 

Chapter IV (Audit reporting) 

The  content  of  the  audit  report  disclosed  to  the  public  is  expanded  so  that  it  explains  the 
methodology used, especially how much of the balance sheet has been directly verified and 
how much has been based on system and compliance testing, the levels of materiality applied 
to  perform  the  audit,  the  key  areas  of  risk  of  material  misstatements  of  the  financial 
statements,  whether  the  statutory  audit  was  designed  to  detect  fraud  and,  in  the  event  of  a 
qualified  or  adverse  opinion  or  a  disclaimer  of  opinion,  the  reasons  for  such  a  decision.  It 
should also explain the variation in the weighting of substantive and compliance testing when 
compared to the previous year. 

Moreover,  the  auditor  should  also  prepare  a  longer  and  more  detailed  report  for  the  audit 
committee. This report would provide more detailed information on the audit carried out, on 
the  situation  of  the  undertaking  as  such  (e.  g.  going  concern)  and  the  findings  of  the  audit 
combined  with  the  necessary  explanations.  This  additional  report  would  also  present  (and 
justify)  the  audit  work  carried  out  to  the  audit  committee.  This  longer  report  would  be 
submitted to the audit committee and to the management of the audited entity, but not to the 
public  (given  that  its  content  would  include  business  secrets  and  potentially  price  sensitive 
information).  However,  upon  request,  the  auditor  should  make  this  report  available  to  the 
competent authority. 

In  most  of  the  financial  services  directives,  the  auditor  is  already  required  to  the  competent 
authorities supervising the PIE any fact or decision concerning the PIE. This obligation is now 
extended  to  all  PIEs.  Moreover,  competent  authorities  supervising  credit  institutions  and 
insurance undertakings should establish a regular dialogue with the auditors. 

Chapter V (Transparency reporting by statutory auditors and audit firms and record keeping) 

Auditors  will  be  required  to  disclose  financial  information,  showing  in  particular  their  total 
turnover  divided  into  audit  fees  paid  by  PIEs,  audit  fees  paid  by  other  entities  and  fees  for 
other services. They should also disclose financial information at the level of the network to 
which they belong.  

The transparency reports of auditors of PIEs should be completed by a statement on the firms' 
own  corporate  governance.  Additional  supplementary  information  on  audit  fees  should  be 
provided to competent authorities with a view to facilitating their supervisory tasks. 

The auditor should keep certain documents and information for a period of five years. 

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3.3.3.  Title  III  (The  appointment  of  statutory  auditors  or  audit  firms  by  public-interest 

entities) 

In  order  to  reinforce  the  independence  and  capacity  of  the  audit  committee,  it  should  be 
composed  of  non-executive  members,  at  least  one  member  should  have  experience  and 
knowledge in auditing and another one in accounting and/or auditing.  

The  proposal  for  the  appointment  of  the  auditor  to  the  meeting  of  shareholders  should  be 
based  on  a  recommendation  of  the  audit  committee.  The  recommendation  should  always 
contain a justification of the decision proposed. In addition, unless it concerns the renewal of 
an audit engagement, the recommendation should contain at least two choices (excluding the 
incumbent auditor) and the audit committee should express a duly justified preference for one 
of them. The recommendation of the audit committee should be made after the completion of 
a due tendering process. In the case of credit institutions or insurance undertakings, the audit 
committee should submit its recommendation to  the prudential supervisory  authority, which 
should have the right to veto the choice proposed.  

Contractual clauses with third parties limiting the audited entity's choice of an auditor should 
be prohibited. 

With a view to addressing the threat of familiarity that results from the audited undertaking 
often appointing and re-appointing the same audit firm for decades, the regulation introduces 
mandatory  rotation  of  audit  firms  after  a  maximum  period  of  6  years  that  may  be,  under 
certain  exceptional  circumstances,  extended  to  8  years.  Where  a  public-interest  entity  has 
appointed  two  or  more  statutory  auditors  or  audit  firms,  the  maximum  duration  of  the 
engagements will be 9 years; on an exceptional basis, such duration may be extended to 12 
years. It also provides  for  a  cooling-off period before the audit firm is able to carry  out  the 
statutory  audit  of  the  same  entity  again.  In  order  to  ensure  a  smooth  transition  the  former 
auditor  is  required  to  transfer  a  handover  file  with  relevant  information  to  the  incoming 
auditor. 

The audit committee, one or more shareholders, the competent authorities and the competent 
authorities for the supervision of the PIEs are empowered to bring a claim before a national 
court for the dismissal of the auditor where there are proper grounds.  

3.3.4.  Title  IV  (Surveillance  of  the  activities  of  auditors  and  audit  firms  carrying  out 

statutory audit of public-interest entities) 

Chapter I (Competent authorities) 

Each Member State should designate a competent authority responsible for the supervision of 
auditors  and  audit  firms  auditing  PIEs.  These  authorities  should  be  adequately  staffed  and 
independent  of  auditors.  The  obligations  of  professional  secrecy  apply  to  the  competent 
authorities employees. 

The  competent  authorities  should  have  all  supervisory  and  investigative  powers  that  are 
necessary  to  exercise  their  function  but  should  not  interfere  with  the  content  of  an  audit 
report.. 

The competent authorities should cooperate at the national level with the authority responsible 
for the approval and registration of statutory auditors and audit firms (Directive 2006/43/EC) 
and with other supervisors of PIEs e. g. the banking or the insurance supervisor. 

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Chapter  II  (Quality  assurance,  investigation,  market  monitoring,  contingency  planning  and 
transparency of competent authorities) 

The tasks of the competent authorities include: 

• 

• 

• 

• 

• 

undertaking  quality  assurance  reviews  on  the  statutory  audits  carried  out.  These 
reviews  should  be  proportionate  to  the  scale  and  dimension  of  activity  of  the 
reviewed auditor; 

investigating with a view to detecting, correcting and preventing inadequate statutory 
audits of PIEs; 

monitoring  the  developments  in  the  market  for  the  provision  of  statutory  audit 
services to PIEs;  

regularly monitoring the possible threats to the continuity of the operations of large 
audit  firms,  including  the  risks  arising  from  high  concentration  and  requiring  large 
audit firms to establish contingency plans to address such threats; 

being transparent about their activities, including the publication of individual quality 
assurance review reports. 

Chapter  III  (Cooperation  between  competent  authorities  and  relations  with  the  European 
supervisory authorities) 

The  regulation  requires  that  the  EU-wide  cooperation  between  competent  authorities  takes 
place within ESMA, thus taking over the current EU-wide cooperation mechanism under the 
aegis  of  the  European  Group  of  Auditors'  Oversight  Bodies  (EGAOB),  an  expert  group 
chaired by the European Commission. ESMA is already working in the field of auditing (and 
accounting) regarding PIEs and the legal framework foresees the cooperation of ESMA, the 
European Banking Authority (EBA) and the European Insurance and Occupational Pensions 
Authority (EIOPA) within their joint committee in the area of auditing. ESMA is required to 
create  a  permanent  internal  committee  which  should  at  least  be  composed  of  the  national 
competent authorities.  

ESMA  should  issue  guidance  on  several  issues:  e.g.  on  the  content  and  presentation  of  the 
audit  report  and  the  additional  report  to  the  audit  committe,  on  the  oversight  activity  of  the 
audit committee or for conducting quality assurance reviews. 

A 'voluntary' pan-European audit quality certification is introduced to increase the visibility, 
recognition and reputation of all audit firms having capacities to conduct high quality audits 
of PIEs. ESMA should publish the requirements for obtaining the certificate along with any 
administrative and fee implications. National competent authorities should be involved in the 
examination  of  the  application  for  the  certificate.  Concerning  investigation  and  on-site 
inspections, competent authorities should notify the competent authority of the other Member 
State, if they conclude that activities contrary to the provisions of the Regulation are being or 
have been carried out. Moreover, a competent authority of a Member State may request that 
an  investigation  be  carried  out  by  the  competent  authority  of  another  Member  State  in  the 
latter's territory. 

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Furthermore, colleges of competent authorities may be established by ESMA upon request of 
one or more competent authorities in order to facilitate the exercise of certain tasks.  

Chapter IV (Cooperation with third country auditors and with international organisations and 
bodies) 

The competent authorities and ESMA may conclude cooperation agreements on the exchange 
of  information  with  the  competent  authorities  of  third  countries  only  if  the  information 
disclosed is subject to guarantees of professional secrecy and provided data protection rules 
are respected. 

3.3.5.  Title V (Supervisory measures and penalties) 

In  order  to  improve  compliance  with  the  requirements  of  this  Regulation  and  following  the 
Commission  Communication  of  9  December  2010  entitled 'Reinforcing sanctioning regimes 
in the financial sector'8, the powers to adopt supervisory measures and the sanctioning powers 
of  competent  authorities  are  enhanced.  Administrative  pecuniary  sanctions  on  auditors  and 
PIEs  for  identified  violations  are  envisaged.  Authorities  should  be  transparent  about  the 
sanctions and measures they apply. 

3.3.6.  Title VI (Reporting and transitional and final provisions) 

A  transitional  regime  is  introduced  regarding  the  entry  into  force  of  the  obligation  to  rotate 
audit firms, the obligation to organise a selection procedure for the choice of audit firm and 
the establishment of audit firms that only provide audit services. 

3.3.7.  Regulatory technical standards and compliance with Article 290 TFE 

In order to take account of developments in auditing and the audit market, ESMA is requested 
to  submit  regulatory  technical  standards  to  the  Commission  in  order  to  specify  technical 
requirements on the content of the handover file that the new auditor should receive and the 
establishment  of  a  European  quality  certificate  for  auditors  carrying  out  statutory  audits  of 
PIEs. The Commission is empowered to adopt these technical standards as delegated acts. 

On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, 
EIOPA (The European Insurance and Occupational Pensions Authority (EIOPA), and ESMA 
(European Securities and Markets Authority)9. In this respect the Commission wishes to recall 
the  Statements  in  relation  to  Articles  290  and  291  TFEU  it  made  at  the  adoption  of  the 
Regulations  establishing  the  European  Supervisory  Authorities  according  to  which:  "As 
regards the process for the adoption of regulatory standards, the Commission emphasises the 
unique character of the financial services sector, following from the Lamfalussy structure and 
explicitly recognised in Declaration 39 to the TFEU. However, the Commission has serious 
doubts  whether  the  restrictions  on  its  role  when  adopting  delegated  acts  and  implementing 
measures are in line with Articles 290 and 291 TFEU." 

8 
9 

COM(2010) 716 final. 
COM(2009) 501 final, COM(2009) 502 final, COM (2009) 503 final. 

EN 

10 

   EN 

 
                                                 
4. 

BUDGETARY IMPLICATION 

The Commission's proposal has no direct or indirect impact on the European Union budget. In 
particular,  tasks  that  would  be  entrusted  to  EU  supervisory  bodies  as  mentioned  in  the 
proposal would not entail additional EU funding. 

EN 

11 

   EN 

 
2011/0359 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on specific requirements regarding statutory audit of public-interest entities 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Economic and Social Committee10, 

After consulting the European Data Protection Supervisor11, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Statutory auditors and audit firms are entrusted by law to conduct statutory audits of 
public-interest entities with a view to enhancing the degree of confidence of the public 
in the annual and consolidated financial statements of such entities. The public-interest 
function  of  statutory  audit  means  that  a  broad  community  of  people  and  institutions 
rely on the quality of a statutory auditor's work. Good audit quality contributes to the 
orderly  functioning  of  markets  by  enhancing  the integrity and efficiency of financial 
statements. Thereby, auditors fulfil a particularly important societal role. 

Union legislation requires that the financial stements, comprising annual accounts or 
consolidated  accounts,  of  credit  institutions,  insurance  undertakings,  issuers  of 
securities  admitted  to  trading  on  a  regulated  market,  payment  institutions,  UCITS, 
electronic  money  institutions  and  alternative  investment  funds  be  audited  by  one  or 
more persons entitled to carry out such audits in accordance with Union law, namely: 
Article  1(1)  of  Council  Directive  86/635/EEC  of  8  December  1986  on  the  annual 
accounts and consolidated accounts of banks and other financial institutions12, Article 

10 
11 
12 

OJ C , , p. . 
Date of the opinion of the EDPS 
OJ L 372, 31.12.1986, p. 1. 

EN 

12 

   EN 

 
                                                 
1(1) of  Council Directive 91/674/EEC  of 19 December  1991 on the annual accounts 
and  consolidated  accounts  of  insurance  undertankings13,  Article  4(4)  of  Directive 
2004/109/EC of the European Parliament and of the Council of 15 December 2004 on 
the  harmonisation  of  transparency  requirements  in  relation  to  information  about 
issuers whose securities are admitted to trading on a regulated market and amending 
Directive  2001/34/EC14,  Article  15(2)  of  Directive  2007/64/EC  of  the  European 
Parliament  and  of  the  Council  of  13  November  2007  on  payment  services  in  the 
internal  market  amending  Directives  97/7/EC,  2002/65/EC,  2005/60/EC  and 
2006/48/EC and repealing Directive 97/5/EC15, Article 73 of Directive 2009/65/EC of 
the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the  coordination  of 
laws, regulations and administrative provisions relating to undertakings for collective 
investment in transferable securities (UCITS)16, Article 3(1) of Directive 2009/110/EC 
of the European Parliament and of the Council of 16 September 2009 on the taking up, 
pursuit  and  prudential  supervision  of  the  business  of  electronic  money  institutions 
amending  Directives  2005/60/EC  and  2006/48EC  and 
repealing  Directive 
2000/46/EC17, and Article 22(3) of Directive 2011/61/EC of the European Parliament 
and  of  the  Council  of  8  June  2011  on  Alternative  Investment  Fund  Managers  and 
amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations  (EC)  No 
1060/2009  and  (EU)  No 1095/201018.  Moreover,  Article  4(1)(1)  of  Directive 
2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
markets  in  financial  instruments  amending  Council  Directives  85/611/EEC  and 
93/6/EEC  and  Directive  2000/12/EC  of  the  European  Parliament  and  of  the  Council 
and  repealing  Council  Directive  93/22/EEC19  also  requires  that  the  annual  financial 
statements  of  investment  firms  be  audited  when  the  Fourth  Council  Directive 
78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies20 or 
the  Seventh  Council  Directive  83/349/EEC  of  13  June  1983  on  consolidated 
accounts21 are not appplicable.  

The  conditions  for  the  approval  of  the  persons  responsible  for  carrying  out  the 
statutory  audit  as  well  as  the  minimum  requirements  for  carrying  out  such  statutory 
audit  are  laid  down  in  Directive  2006/43/EC  of  the  European  Parliament  and  of  the 
Council  of  17  May  2006  on  statutory  audits  of  annual  accounts  and  consolidated 
accounts,  amending  Council  Directives  78/660/EEC  and  83/349/EEC  and  repealing 
Council Directive 84/253/EEC22.  

During the recent financial crisis, numerous banks revealed huge losses from 2007 to 
2009 on the position they had held both on and off balance sheet. This raised not only 
the  question  of  how  auditors  could  give  unqualified  audit  reports  to  their  clients  for 
those  periods  but  also  about  the  suitability  and  adequacy  of  the  current  legislative 
framework. The Commission published on 13 October 2010 a Green Paper on Audit 

OJ L 374, 31.12.1991, p. 7. 
OJ L 390, 31.12.2004, p. 38. 
OJ L 319, 5.12.2007, p. 1. 
OJ L 302, 17.11.2009, p. 32. 
OJ L 267, 10.10.2009, p. 7. 
OJ L 174, 1.7.2011, p.1. 
OJ L 145, 30.4.2004, p. 1. 
OJ L 222, 14.8.1978, p.11. 
OJ L 193, 18.7.1983, p. 1. 
OJ L 157, 9.6.2006, p.87. 

(3) 

(4) 

13 
14 
15 
16 
17 
18 
19 
20 
21 
22 

EN 

13 

   EN 

 
                                                 
Policy:  Lessons  from  the  Crisis23,  which  launched  a  wide  public  consultation,  in  the 
general context of financial market regulatory reform, on the role and scope of audit 
and  how  the  audit  function  could  be  enhanced  in  order  to  contribute  to  increased 
financial  stability.  It  resulted  from  the  public  consultation  that  the  rules  of  Directive 
2006/43/EC  regarding  the  carrying  out  of  the  statutory  audit  of  annual  and 
consolidated accounts of public-interest entities could be substantially improved. The 
European  Parliament  issued  an  own  initiative  report  on  the  Green  Paper  on  13 
September 2011. The European Economic and Social Committee also adopted a report 
on that Green Paper on 16 June 2011. 

It  is  important  to  lay  down  detailed  rules  with  a  view  to  ensuring  that  the  statutory 
audits of public-interest entities are of adequate quality and are carried out by statutory 
auditors  and  audit  firms  subject  to  stringent  requirements.  A  common  regulatory 
approach  should  enhance  the  integrity,  independence,  objectivity,  responsibility, 
transparency and reliability of statutory auditors and audit firms carrying out statutory 
audit  of  public-interest  entities,  contributing  to  the  quality  of  statutory  audit  in  the 
Union,  thereby  contributing  to  smooth  functioning  of  the  internal  market,  while 
achieving  a  high  level  of  consumer  and  investor  protection.  The  development  of  a 
separate act for public-interest entities should also ensure consistent harmonisation and 
uniform application and thus contribute to a more effective functioning of the internal 
market. 

The financial sector is evolving and new categories of financial institutions are created 
by  Union  law.  The  importance  of  new  entities  and  activities  outside  the  regular 
banking system is growing and their impact on financial stability has become greater. 
Therefore,  it  is  appropriate  that  the  definition  of  public-interest  entity  also 
encompasses  other  financial  institutions  and  entities  such  as  investment  firms, 
payment institutions, undertakings for collective investments in transferable securities 
(UCITS), electronic money institutions and alternative investment funds.  

Audit  of  annual  and  consolidated  financial  statements  is  intended  as  a  statutory 
safeguard  for  investors,  lenders  and  business  counterparties  who  have  a  stake  or  a 
business  interest  in  public-interest  entities.  Hence,  statutory  auditors  and  audit  firms 
should be completely independent when carrying out statutory audits of such entities 
and conflicts of interest should be avoided. In order to determine the independence of 
auditors and audit firms, the concept of network in which auditors and firms operate 
has to be taken into account. 

Adequate internal organisation of statutory auditors and audit firms should contribute 
to  preventing  any  threats  to  their  independence.  Thus,  owners  or  shareholders  of  an 
audit firm, as well as those managing it, should not intervene in the carrying out 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. 
Additionally,  statutory  auditors  and  audit  firms  should  establish  appropriate  internal 
policies  and  procedures  in  relation  to  employees  and  other  persons  involved  in  the 
statutory  audit  activity  within  their  organisations  in  order  to  ensure  compliance  with 
their statutory obligations. Those policies and procedures should in particular seek to 
prevent and address any threats to independence and ensure the quality, integrity and 

(5) 

(6) 

(7) 

(8) 

23 

COM(2010)561 final. 

EN 

14 

   EN 

 
                                                 
thoroughness  of  the  statutory  audit.  Those  policies  and  procedures  should  be 
proportionate  in  view  of  the  scale  and  complexity  of  the  business  of  the  statutory 
auditor or audit firm.  

(9) 

Auditors,  audit  firms  and  their  employees  should  in  particular  refrain  from  carrying 
out the statutory audit of an entity if they have a business interest or financial interest 
in  it  and  from  engaging  on  trading  in  financial  instruments  issued,  guaranteed  or 
otherwise supported by an audited entity, other than holdings in diversified collective 
investment  schemes.  The  statutory  auditor  or  audit  firm  should  abstain  from  the 
internal  decision-making  processes  of  the  audited  entity.  Statutory  auditors  or  their 
employees  should  be  prevented  from  taking  up  duties  in  the  audited  entity  at 
managerial or board level until an appropriate period has elapsed since the end of the 
audit engagement. 

(10)  The  level  of  fees  received  from  one  audited entity  and  the  structure  of  fees  can  also 
threaten the independence of a statutory auditor or audit firm. Thus, it is important to 
ensure  that  audit  fees  are  not  based  on  any  form  of  contingency  and  that,  when  the 
audit  fees  from  a  single  client  are  significant,  a  specific  procedure  is  established  to 
secure  the  quality  of  the  audit.  If  the  dependence  on  a  single  client  is  excessive,  the 
statutory auditor or the audit firm should refrain from undertaking the statutory audit 
in question. 

(11)  The  provision  of  services  other  than  statutory  audit  to  audited  entities  by  statutory 
auditors,  audit  firms  or  members  of  their  networks  may  compromise  their 
independence.  Therefore,  it  is  appropriate  to  require  the  statutory  auditor,  the  audit 
firm  and  the  members  of  their  network  not  to  provide  non-audit  services  to  their 
audited  entities.  The  provision  of  non-audit  services  by  an  audit  firm  to  a  company 
would prevent that audit firm from carrying out statutory audit of that company, thus 
resulting  in  a  reduction  of  the  audit  firms  available  to  provide  statutory  audit,  in 
particular with regard to the audit of large public-interest entities where the market is 
concentrated. As a result, in order to secure that a minimum number of audit firms is 
able  to  provide  audit  services  to  large  public-interest  entities,  it  is  appropriate  to 
request that audit firms of significant dimension focus their professional activity on the 
carrying  out  of  statutory  audit  and  are  not  allowed  to  undertake  other  services 
unconnected to their statutory audit function such as consultancy or advisory services. 

(12)  With a view to avoiding conflicts of interest it is important that the statutory auditor or 
the audit firm, before accepting or continuing an engagement for a statutory audit of a 
public-interest entity, assesses whether the independence requirements are met, and in 
particular whether any threats to independence arise as a result of the relationship with 
that entity. In order to maintain this independence, it is also important that they keep 
records  of  all  threats  to  their  independence  and  that  of  their  employeess  and  other 
persons  involved  in  the  statutory  audit  process,  as  well  as  the  safeguards  applied  to 
mitigate  those  threats.  Moreover,  where  the  threats  to  their  indepedence,  even  after 
having  applied  safeguards  to  mitigate  those  threats,  are  too  significant,  they  should 
resign  or  abstain  from  the  audit  engagement.  The  statutory  auditor  or  the  audit  firm 
should  confirm  annually  to  the  audit  committee  of  the  audited  entity  their 
independence  and  discuss  with  such  committee  any  threat  to  their  independence  as 
well as the safeguards applied to mitigate those threats. 

EN 

15 

   EN 

 
(13)  Directive 95/46 of the European Parliament and of the Council of 24 October 1995 on 
the protection of individuals with regard to the processing of personal data and on the 
free movement of such data24 govern the processing of personal data carried our in the 
Member  States  in  the  context  of  this  Regulation  and  under  the  supervision  of  the 
Member States competent authorities, in particular the public independent authorities 
designated  by  the  Member  States.  Regulation  (EU)  No  45/2001  of  the  European 
Parliament and of the Council of 18 December 2000 on the protection of individuals 
with regard to the processing of personal data by the EU institutions and bodies and on 
the free movement of such data25, governs the processing of personal data carried out 
by  ESMA  within  the  framework  of  this  Regulation  and  under  the  supervision  of  the 
European  Data  Protection  Supervisor.  Any  exchange  or  transmission  of  information 
by  competent  authorities  should  be  in  accordance  with  the  rules  on  the  transfer  of 
personal data as laid down in Directive 95/46/EC and any exchange or transmission of 
information  by  ESMA  should  be  in  accordance  with  the  rules  on  the  transfer  of 
personal data as laid down in Regulation (EC) No 45/2001. 

(14) 

It is important that statutory auditors and audit firms respect the rights to private life 
and data protection of of their clients. They should therefore be bound by strict rules 
on  confidentiality  and  professional  secrecy  which,  however,  should  not  impede  the 
proper enforcement of this Regulation or the cooperation with the group auditor during 
the  performance  of  the  audit  of  consolidated  financial  statements  when  the  parent 
undertaking is in a third country, provided that Directive 95/46/EC is complied with. 
However,  such  rules  would  not  allow  a  statutory  auditor  or  audit  firm  to  cooperate 
with third country authorities outside the cooperation channels foreseen in Chapter XI 
of Directive 2006/43/EC. Those confidentiality rules should also apply to any statutory 
auditor or audit firm which has ceased to be involved in a specific audit task. 

(15)  The  statutory  audit  results  in  an  opinion  on  the  truth  and  fairness  of  the  financial 
statements of the audited entities. Stakeholders, however, might to be unaware of the 
limitations  of  an  audit  (materiality,  sampling  techniques,  role  of  the  auditor  in  the 
detection  of  fraud  and  the  responsibility  of  managers),  which  can  lead  to  an 
expectation gap. In order to reduce such gap, it is important to provide more clarity on 
what the scope of the statutory audit is. 

(16)  Whilst the primary responsibility for delivering financial information should rest with 
the  management  of  the  audited  entities,  auditors  play  a  role  by  actively  challenging 
management from a user's perspective. In order to improve audit quality, it is therefore 
important  that  the  professional  scepticism  exercised  by  auditors vis-à-vis  the  audited 
entity  is  reinforced.  Auditors  should  recognise  the  possibility  that  a  material 
misstatment  due  to  fraud  or  error  could  exist,  notwithstanding  the  auditor's  past 
experience of the honesty and integrity of the audited entity's management. Securing 
audit quality should be the main criterion to organise the audit work and to allocate the 
necessary resources to the tasks. The integrity of the statutory auditor, audit firm and 
their staff is essential to ensure the public confidence in statutory audits and financial 
markets. Therefore, any incident that may have serious consequences for the integrity 
of the statutory audit activities should be appropriately managed. The statutory auditor 
or the audit firm should appropriately document the audit work. 

24 
25 

OJ L 281, 23.11.1995, p. 31. 
OJ L 8, 12.1.2001, p. 1. 

EN 

16 

   EN 

 
                                                 
(17) 

In  the  case  of  consolidated  financial  statements,  it  is  important  that  there  is  a  clear 
definition of responsibilities of the statutory auditors who audit different entities of the 
group. For this purpose, the group auditor should bear full responsibility for the audit 
report. 

(18)  A sound internal quality control review of the work carried out in each statutory audit 
engagement should be conducive to high audit quality. Therefore, the statutory auditor 
or  the  audit  firm  should  not  issue  his,  her  or  its  audit  report  until  such  an  internal 
quality control review has been completed. 

(19)  The results of the statutory audit should be presented to the stakeholders in the audit 
report. In order to increase the confidence of stakeholders in the financial statements 
of the audited entity, it is particularly important that the audit report is well-founded 
and  solidly  substantiated  and  its  content  expanded  to  include  additional  information 
specific to the audit carried out. The audit report should in particular include sufficient 
information on the methodology used in the audit, especially how much of the balance 
sheet  has  been  directly  verified  and  how  much  has  been  based  on  system  and 
compliance testing, on the levels of materiality applied to perform the audit, on the key 
areas  of  risk  of  material  misstatements  of  the  annual  and  consolidated  financial 
statements,  on  whether  the  statutory  audit  was  designed  to  detect  fraud  and,  in  the 
event of a qualified or adverse opinion or a disclaimer of opinion, on the reasons for 
such decision. 

(20)  The value of statutory audit for the audited entity would be particularly enhanced if the 
communication between the statutory auditor or the audit firm, on the one hand, and 
the audit committee, on the other hand, was reinforced. Further to the regular dialogue 
during the carrying out of the statutory audit, it is important that the statutory auditor 
or the audit firm submits to the audit committee an additional and more detailed report 
on  the  results  of  the  statutory  audit.  It  should  be  possible  to  make  such  additional 
detailed  reports  available  to  the  supervisors  of  public-interest  entities,  but  not  to  the 
public. 

(21)  Statutory auditors or audit firms already provide supervisors of public-interest entities 
with  information  on  facts  or  decisions  which  could  constitute  a  breach  of  the  rules 
governing  the  activities  of  the  audited  entity  or  the  impairment  of  the  continuous 
functioning  of  the  audited  entity.  Supervisory  tasks  would  also  be  facilitated  if 
supervisors  of  credit  and  financial  institutions  were  required  to  establish  a  regular 
dialogue with their statutory auditors and audit firms. 

(22) 

In  order  to  increase  the  confidence  in  and  the  liability  of  the  statutory  auditors  and 
audit  firms  carrying  out  the  statutory  audit  of  public-interest  entities,  it  is  important 
that  the  transparency  reporting  by  statutory  auditors  and  audit  firms  is  increased. 
Therefore,  statutory  auditors  and  audit  firms  should  be  required  to  disclose  audited 
financial information, showing in particular their total turnover divided into audit fees 
paid  by  public-interest  entities,  audit  fees  paid  by  other  entities  and  fees  for  other 
services. They should also disclose financial information at the level of the network to 
which they belong. The transparency reports of audit firms should be completed by a 
statement  on  corporate  governance  with  a  view  to  showing  whether  the  audit  firm 
maintains  arrangements  for  sound  corporate  governance.  Additional  supplementary 
information on audit fees should be provided to competent authorities with a view to 
facilitating their supervisory tasks. 

EN 

17 

   EN 

 
(23)  Audit  committees,  or  bodies  performing  an  equivalent  function  within  the  audited 
entity,  have  a  decisive  role  in  contributing  to  high-quality  statutory  audit.  It  is 
particularly important to reinforce the independence and technical competence of the 
audit committee by requiring that a majority of its members is independent and that at 
least  one  member  of  the  committee  has  competence  in  auditing  and  another  one  in 
auditing  and/or  accounting.  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)  board26  sets  out  how  audit  committees  should  be 
established and function. Considering, however, the dimension of boards in companies 
with  reduced  market  capitalisation  and  in  small  and  medium-sized  public-interest 
entities, it would be appropriate that the functions assigned to the audit committee for 
those entities, or to a body performing equivalent functions within the audited entity, 
may  be  performed  by  the  administrative  or  supervisory  body  as  a  whole.  Public-
interest  entities  which  are  UCITS  or  alternative  investment  funds  should  also  be 
exempted from the obligation to have an audit committee. This exemption takes into 
account  the  fact  that  where  those  funds  function  merely  for  the  purpose  of  pooling 
assets,  the  employment  of  an  audit  committee  is  not  appropriate.  UCITS  and 
alternative  investments  funds,  as  well  as  their  management  companies,  operate  in  a 
strictly  defined  regulatory  environment  and  are  subject  to  specific  governance 
mechanisms such as controls exercised by their depositary. 

(24) 

It  is  also  important  that  the  role  of  the  audit  committee  in  the  selection  of  a  new 
statutory  auditor  or  audit  firm  be  reinforced,  for  the  benefit  of  a  more  informed 
decision  of  the  general  meeting  of  shareholders  or  members  of  the  audited  entity. 
Hence,  when  making  a  proposal  to  the  general  meeting,  the  board  should  explain 
whether it follows the recommendation of the audit committee and, if not, why. The 
recommendation  of  the  audit  committee  should  include  at  least  two  possible  choices 
for the audit engagement and a duly justified preference for one of them, so that the 
general  meeting  can  make  a  real  choice.  In  order  to  provide  a  fair  and  proper 
justification  in  its  recommendation,  the  audit  committee  should  use  the  results  of  a 
the 
mandatory  selection  procedure  organised  by 
responsibility  of  the  audit  committee.  In  such  selection  procedure,  the  audited  entity 
should  invite  statutory  auditors  or  audit  firms,  including  smaller  ones,  to  present 
proposals for the audit engagement. Tender documents should contain transparent and 
non-discriminatory  selection  criteria  to  be  used  for  the  evaluation  of  proposals. 
Considering, however, that this selection procedure could entail disproportionate costs 
for companies with reduced market capitalisation or small and medium-sized public-
interest  entities  having  regard  to  their  dimension,  it  is  appropriate  to  relieve  such 
entities from this obligation.  

the  audited  entity,  under 

(25)  The right of the general meeting of shareholders or members of the audited entity to 
choose the statutory auditor or the audit firm would be of no value if the audited entity 
were  to  enter  into  a  contract  with  a  third  party  providing  for  a  restriction  of  such 
choice. Therefore any contractual clause entered into by the audited entity with a third 
party regarding the appointment or restricting the choice of a particular auditor or audit 
firm should be considered null and void. 

26 

OJ L 52, 25.2.2005, p. 51. 

EN 

18 

   EN 

 
                                                 
(26)  The appointment of more than one statutory auditor or audit firm by the public-interest 
entities would reinforce the professional scepticism and contribute to increasing audit 
quality. Also, this measure combined with the presence of smaller audit firms would 
facilitate the development of the capacity of such firms, thus contributing to increasing 
the choice of statutory auditors and audit firms for public-interest entities. Therefore, 
the  latter  should  be  encouraged  and  incentivised  to  appoint  more  than  one  statutory 
auditor or audit firm to carry out the statutory audit.  

(27) 

(28) 

(29) 

In order to address the familiarity threat and therefore reinforce the independence of 
auditors and audit firms, it is important to establish a maximum duration of the audit 
engagement  of  a  statutory  auditor  or  audit  firm  in  a  particular  audited  entity.  An 
appropriate gradual rotation mechanism should also be established with regard to the 
most senior personnel involved in the statutory audit, including the key audit partners 
carrying  out  the  statutory  audit  on  behalf  of  the  audit  firm.  It  is  also  important  to 
provide  for  an  appropriate  period  within  which  such  statutory  auditor  or  audit  firm 
may not carry out the statutory audit of the same entity. In order to ensure a smooth 
transition, the former auditor should transfer a handover file with relevant information 
to the incoming auditor. 

In  order  to  protect  the  independence  of  the  auditor,  it  is  important  that  dismissal 
should  be  possible  only  where  there  are  proper  grounds  and  if  those  grounds  are 
communicated to the authority or authorities responsible for supervision. Where there 
are  proper  grounds,  but  the  audited  entity  does  not  act,  the  audit  committee,  the 
shareholders, the competent authorities responsible for the supervision of auditors and 
audit firms or the competent authorities responsible for the supervision of the public-
interest  entity  should  be  empowered  to  bring  a  case  before  a  national  court  on  the 
dismissal of the auditor. 

In  order  to  ensure  a  high  level  of  investor  and  consumer  confidence  in  the  internal 
market by avoiding conflicts of interests, statutory auditors and audit firms should be 
subject  to  appropriate  supervision  by  competent  authorities  which  are  independent 
from the audit profession and which have adequate capacity, expertise and resources. 
The  national  competent  authorities  should  have  the  necessary  powers  to  undertake 
their  supervisory  tasks,  including  the  capacity  to  access  documents,  demand 
information from any person and carry out inspections. They should specialize in the 
supervision of financial markets, of compliance with financial reporting obligations or 
in statutory audit oversight. However, it should be possible that the supervision of the 
compliance  with  the  obligations  set  on  public-interest  entities  is  carried  out  by  the 
competent authorities responsible for the supervision of those entities. The funding of 
the  competent  authorities  should  be  free  from  any  possible  undue  influence  by 
statutory auditors or audit firms. 

(30)  The  quality  of  supervision  should  improve  if  there  is  effective  cooperation  between 
authorities  charged  with  different  tasks  at  national  level.  Therefore,  the  authorities 
competent  to  supervise  compliance  with  the  obligations  on  statutory  audit  of  public-
interest entities should cooperate with the authorities responsible for the approval and 
registration of statutory auditors and audit firms, with those supervising public-interest 
entities and with the Financial Intelligence Units referred to in Directive 2005/60/EC 
of the European Parliament and of the Council of 26 October 2006 on the prevention 

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19 

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of  the  use  of  the  financial  system  for  the  purpose  of  money  laundering  and  terrorist 
financing27. 

(31)  External quality assurance for the statutory audit is fundamental for high quality audit. 
It adds credibility to published financial information and provides better protection of 
shareholders,  investors,  creditors  and  other  interested  parties.  Statutory  auditors  and 
audit  firms  should  therefore  be  subject  to  a  system  of  quality  assurance  under  the 
responsibility of the competent authorities, thus ensuring objectivity and independence 
from  the  audit  profession.  Quality  assurance  reviews  should  be  organised  in  such  a 
manner  that  each  statutory  auditor  or  each  audit  firm  undertaking  audits  of  public-
interest entities is subject to a quality assurance review at least every three years. The 
Commission  Recommendation  of  6  May  2008  on  external  quality  assurance  for 
statutory  auditors  and  audit  firms  auditing  public  interest  entities28  provides 
information  on  how  inspections  should  be  undertaken.  Quality  assurance  reviews 
should  be  proportionate  in  view  of  the  scale  and  complexity  of  the  business  of  the 
reviewed audit firm or statutory auditor. 

(32) 

Investigations  help  to  detect,  prevent  and  correct  inadequate  carrying  out  of  the 
statutory  audit  of  public-interest  entities.  Therefore,  competent  authorities  should  be 
empowered to undertake investigations of statutory auditors and audit firms. 

(33)  The  market  for  the  provision  of  statutory  audit  services  to  public-interest  entities 
evolves  over  time.  It  is  therefore  necessary  that  competent  authorities  monitor  the 
developments in the market, particularly as regards possible limited choice of auditor 
and the risks that arise from high market concentration. 

(34)  The demise of important audit firms may disrupt the provision of audit services in the 
market  and  could  result  in  further  structural  accumulation  of  risk  in  the  market. 
Therefore,  competent  authorities  should,  as  a  preventive  action,  request  the  largest 
audit firms in each Member State to establish contingency plans addressing a possible 
event threatening the continuity of operations of the concerned firm. Such plans may 
identify measures to prepare an orderly failure of the firm concerned. 

(35)  The  transparency  of  the  activities  of  competent  authorities  should  contribute  to 
increase the confidence of investors and consumers in the internal market. Therefore, 
competent authorities should be required to regularly report on their activities and to 
publish individual inspections reports. 

(36)  The cooperation between the competent authorities of the Member States can make an 
important contribution to ensuring consistently high quality in the statutory audit in the 
Union.  Therefore,  the  competent  authorities  of  the  Member  States  should  cooperate 
with  each  other,  where  necessary,  for  the  purpose  of  carrying  out  their  supervisory 
duties  regarding  statutory  audits.  They  should  respect  the  principle  of  home-country 
regulation and oversight by the Member State in which the statutory auditor or audit 
firm  is  approved  and  the  audited  entity  has  its  registered  office.  The  cooperation 
between competent authorities would be particularly enhanced if organised within the 
framework of the Joint Committee of European Supervisory Authorities (ESA), under 

27 
28 

OJ L 309, 25.11.2005, p. 15. 
OJ L 120, 7.5.2008, p.20. 

EN 

20 

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the  leadership  of  the  European  Securities  and  Markets  Authority  (ESMA)  set  up  by 
Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 
November 2010 establishing a European Supervisory Authority (European Securities 
Market  Authority)29.  ESMA,  with  the  assistance  of  the  European  Banking  Authority 
(EBA)  set  up  by  Regulation  (EU)  No  1093/2010  of  the  European  Parliament  and  of 
the  Council  of  24  November  2010  establishing  a  European  Supervisory  Authority 
(European  Banking  Authority)30  and  the  European  Insurance  and  Occupational 
Pensions  Authority  (EIOPA)  set  up  by  Regulation  (EU)  No  1094/2010  of  the 
European  Parliament  and  of  the  Council  of  24  November  2010  establishing  a 
European  Supervisory  Authority  (European  Insurance  and  Occupational  Pensions 
Authority)31, should contribute to that cooperation by providing advice and guidelines 
to national competent authorities. 

(37)  The scope of cooperation between the competent authorities of Member States should 
include  exchange  of  information,  cooperation  with  regard  to  quality  assurance 
assurance reviews, assistance to investigations related to the carrying out of statutory 
audits  of  public-interest  entities,  including  in  cases  where  the  conduct  under 
investigation  does  not  constitute  an  infringment  of  any  legislative  or  regulatory 
provision  in  force  in  the  Member  States  concerned  and  contingency  planning.  The 
modalities  of  cooperation  between  the  competent  authorities  of  the  Member  States 
may  include  the  creation  of  colleges  of  competent  authorities  and  the  delegation  of 
tasks among themselves. The concept of network in which auditors and firms operate 
should  be  taken  into  account  in  such  cooperation.  Competent  authorities  and  the 
European  Supervisory  Authorities  should  respect  appropriate  confidentiality  and 
professional secrecy rules. 

(38)  Recognition of the aptitude of statutory auditors and audit firms to perform statutory 
audits  of  public-interest  entities  should  faciliate  the  access  of  auditors  and  firms  to 
other clients. Therefore, it is important to provide for a Quality Certificate of European 
dimension  which  should  be  developed  by  ESMA.  National  competent  authorities 
should be involved in the examination of the applications for the certificate. 

(39)  The  interrelation  of  capital  markets  calls  for  empowering  national  competent 
authorities  and  the  European  Supervisory  Authorities  to  cooperate  with  supervisory 
authorities  and  bodies  of  third  countries  regarding  the  exchange  of  information  or 
quality  assurance  reviews.  However,  where  the  cooperation  with  third  country 
authorities  is  related  to  audit  working  papers  or  other  documents  held  by  statutory 
auditors or audit firms, the procedures of Directive 2006/43/EC should apply. 

(40)  Sustainable  audit  capacity  and  a  competitive  market  for  statutory  audit  services  in 
which there is a sufficient choice of audit firms capable of carrying out statutory audits 
of  public-interest  entities  are  required  in  order  to  ensure  a  smooth  functioning  of 
capital  markets.  ESMA  should  report  on  the  changes  brought  in  the  audit  market 
structure  by  this  Regulation.  When  carrying  such  analysis,  ESMA  should  take  into 
account  the  impact  of  the  national  civil  liability  rules  for  statutory  auditors  on  the 
structure of the audit market. Based on such report and other appropriate evidence, the 

29 
30 
31 

OJ L 331, 15.12.2010, p.84. 
OJ L 331, 15.12.2010, p.12. 
OJ L 331, 15.12.2010, p.48. 

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Commission  should  present  a  report  on  the  impact  of  the  national  liability  rules  for 
statutory auditors on the audit market structure and should take the steps it considers 
appropriate as a result of its findings.  

(41) 

In  order  to  improve  compliance  with  the  requirements  of  this  Regulation  and 
following the Commission Communication of 9 December 2010 entitled 'Reinforcing 
sanctioning regimes in the financial sector'32, the power to adopt supervisory measures 
and 
the  sanctioning  powers  of  competent  authorities  should  be  enhanced. 
Administrative  pecuniary  sanctions  on  statutory  auditors,  audit  firms  and  public-
interest entities for identified violations should be foreseen. The competent authorities 
should be transparent about the sanctions and measures they apply. The adoption and 
publication of sanctions should respect fundamental rights as laid down in the Charter 
of  Fundamental  Rights  of  the  European  Union,  in  particular  the  right  to  respect  for 
private and family life (Article 7), the right to the protection of personal data (Article 
8) and the right to an effective remedy and to a fair trial (Article 47). 

(42)  Whistleblowers  can  bring  new  information  to  the  attention  of  competent  authorities 
which  assists  them  in  detecting  and  sanctioning  irregularities,  including  fraud. 
However, whistleblowers may be deterred from doing so for fear of retaliation, or may 
lack  incentives  to  do  so.  Member  States  should  therefore  ensure  that  adequate 
arrangements  are  in  place  to  encourage  whistleblowers  to  alert  them  to  possible 
breaches of this Regulation and to protect them from retaliation. Member States may 
also provide them with incentives for doing so; however, whistleblowers should only 
be eligible for such incentives where they bring to light new information which they 
are  not  already  legally  obliged  to  notify  and  where  this  information  results  in  a 
sanction  for  a  breach  of  this  Regulation.  Member  States  should  also  ensure  that 
whistleblowing schemes they implement include mechanisms that provide appropriate 
protection of a reported person, particularly with regard the right to the protection of 
his personal data and procedures to ensure the right of the reported person of defence 
and to be heard before the adoption of a decision concerning him as well as the right to 
seek effective remedy before a tribunal against a decision concerning him. 

(43) 

(44) 

In  order  to  take  account  of  developments  in  auditing  and  the  audit  market,  the 
Commission should be empowered to specify technical requirements on the content of 
the handover file that the new statutory auditor or audit firm should receive and on the 
establishment  of  a  European  quality  certificate  for  statutory  auditors  and  audit  firms 
carrying out statutory audits of public-interest entities. 

In  order  to  take  account  of  the  technical  developments  in  the  financial  markets,  in 
auditing  and  the  audit  profession  and  to  specify  the  requirements  laid  down  in  this 
Regulation,  the  Commission  should  be  empowered  to  adopt  delegated  acts  in 
accordance with Article 290 of the Treaty on the Functioning of the European Union. 
In  particular,  the  use  of  delegated  acts  is  necessary  to  adapt  the  list  of  related  audit 
services  and  of  non-audit  services  as  well  as  to  set  out  the  level  of  fees  that  ESMA 
could charge for delivering the European Quality Certificate to statutory auditors and 
audit firms. It is of particular importance that the Commission carries out appropriate 
consultations during its preparatory work, including at expert level. The Commission, 
when preparing and drawing up delegated acts, should ensure a simultaneous, timely 

32 

COM(2010)716 final. 

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22 

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and appropriate transmission of relevant documents to the European Parliament and to 
the Council. 

(45) 

In order to ensure legal certainty and the smooth transition to the regime introduced by 
this  Regulation,  it  is  important  to  introduce a  transitional  regime  regarding  the  entry 
into force of the obligation to rotate audit firms, the obligation to organise a selection 
procedure for the choice of audit firm and the conversion of audit firms into firms that 
only provide audit services. 

(46)  Since the objectives of this Regulation, namely clarifying and better defining the role 
of statutory audit regarding public-interest entities, improving the information that the 
statutory  auditor  or  audit  firm  provides  to  the  audited  entity,  investors  and  other 
stakeholers, improving the communication channels between auditors and supervisors 
of public-interest entities, preventing any conflict of interest arising from the provision 
of  non-audit  services  to  public-interest  entities,  mitigating  the  risk  of  any  potential 
conflict of interest due to existing system of "auditee selects and pays the auditor" or 
to familiarity threat, facilitating the switching of statutory auditor or audit firm and the 
choice  of  an  audit  provider  to  public-interest  entities,  increasing  the  choice  of  audit 
providers to public-interest entities and improving the effectiveness, independence and 
consistency  of  the  regulation  and  supervison  of  statutory  auditors  and  audit  firms 
providing statutory audits to public interest entities including as regards cooperation at 
Union level, cannot be sufficiently achieved by the Member States and can, therefore, 
by  reason  of  their  scale,  be  better  achieved  at  Union  level,  the  Union  may  adopt 
measures, in accordance with the principle of subsidiarity as set out in Article 5 of the 
Treaty on European Union. In accordance with the principle of proportionality, as set 
out in that Article, this Regulatoin does not go beyond what is necessary in order to 
achieve those objectives. 

(47)  This Regulation respects the fundamental rights and observes the principles recognised 
in particular by the Charter of Fundamental Rights of the European Union, notably the 
right  to  respect  for  private  and  family  life  (Article  7),  the  right  to  the  protection  of 
personal data (Article 8), the freedom to conduct a business (Article 16), the right to an 
effective remedy and to a fair trial (Article 47), the presumption of innocence and right 
of  defence  (Article  48),  the  principles  of  legality  and  proportionality  of  criminal 
offences and penalties (Article 49), the right not to be tried or punished twice for the 
same offence (Article 50), and has to be applied in accordance with those rights and 
principles, 

EN 

23 

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HAVE ADOPTED THIS REGULATION: 

TITLE I 

SUBJECT MATTER, SCOPE AND DEFINITIONS 

Article 1 

Subject matter 

This  Regulation  lays  down  requirements  for  the  carrying  out  statutory  audit  of  annual  and 
consolidated  financial  statements  of  public-interest  entities,  rules  on  the  organisation  and 
selection  of  statutory  auditors  and  audit  firms  by  public-interest  entities  to  promote  their 
independence  and  the  avoidance  of  conflicts  of  interest  and  rules  on  the  supervision  of 
compliance by statutory auditors and audit firms with those requirements. 

Article 2 

Scope 

1. 

This Regulation applies to the following: 

(a) 

statutory  auditors  and  audit  firms  who  carry  out  statutory  audits  of  public-
interest entities;  

(b)  public-interest entities. 

2. 

This Regulation applies without prejudice to Directive 2006/43/EC. 

Article 3 

Definitions 

For  the  purposes  of  this  Regulation,  the  definitions  laid  down  in  Article  2  of  Directive 
2006/43/EC shall apply, except for the definitions of 'audit report' and 'competent authority'. 

Article 4 

Large public interest entities 

For the purposes of this Regulation, 'large public-interest entities' shall cover the following 

(a) 

in relation to entities defined in point 13(a) of Article 2 of Directive 2006/43/EC, the 
largest  10  issuers  of  shares  in  each  Member  State  measured  by  the  market 

EN 

24 

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capitalisation on the basis of the end-year quotes and in any case all issuers of shares 
that  had  an  average  market  capitalisation  of  more  than  EUR  1  000  000  000  on  the 
basis of end-year quotes for the previous three calendar years;  

in  relation  to  entities  defined  in  points  13(b)  to  (f)  of  Article  2  of  Directive 
2006/43/EC,  any  entity  which  on  their  balance  sheet  date  has  a  balance  sheet  total 
exceeding EUR 1 000 000 000; 

in  relation  to  entities  defined  in  points  13(g)  and  (h)  of  Article  2  of  Directive 
2006/43/EC,  any  entity  which  on  their  balance  sheet  date  has  total  assets  under 
management exceeding EUR 1 000 000 000. 

(b) 

(c) 

CONDITIONS FOR CARRYING OUT STATUTORY AUDIT OF PUBLIC-INTEREST 
ENTITIES 

TITLE II 

CHAPTER I 

INDEPENDENCE AND AVOIDANCE OF CONFLICTS OF INTEREST 

Article 5 

Independence and objectivity 

A statutory auditor or audit firm shall take all necessary steps to ensure that the carrying out 
of  a  statutory  audit  of  a  public-interest  entity  is  not  affected  by  any  existing  or  potential 
conflict  of  interest  or  business  or  other  relationship  involving  the  statutory  auditor  or  audit 
firm carrying out the statutory audit and, where appropriate, its network, managers, auditors, 
employees, any other natural persons whose services are placed at the disposal or under the 
control of the statutory auditor or audit firm, or any person directly or indirectly linked to the 
statutory auditor or audit firm by control.  

Article 6 

Internal organisation of auditors and audit firms 

1. 

A  statutory  auditor  or  audit  firm  shall  comply  with  the  following  organisational 
requirements:  

(a) 

an audit firm shall establish adequate policies and procedures to ensure that its 
owners  or  shareholders  as  well  as  the  members  of  the  administrative, 
management and supervisory bodies of the firm, or of an affiliate firm, do not 
intervene in the carrying out 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; 

EN 

25 

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(b) 

a  statutory  auditor  or  an  audit  firm  shall  have  sound  administrative  and 
accounting  procedures,  internal  control  mechanisms,  effective  procedures  for 
risk  assessment,  and  effective  control  and  safeguard  arrangements  for 
information processing systems. 

Those internal control mechanisms shall be designed to secure compliance with 
decisions  and  procedures  at  all  levels  of  the  audit  firm  or  of  the  working 
structure of the statutory auditor. 

A  statutory  auditor  or  an  audit  firm  shall  implement  and  maintain  decision-
making  procedures  and  organisational  structures  which  clearly  and  in  a 
documented  manner  specify  reporting  lines  and  allocate  functions  and 
responsibilities; 

a  statutory  auditor  or  an  audit  firm  shall  establish  adequate  policies  and 
procedures  to  ensure  that  his,  her  or  its  employees  and  any  other  natural 
persons whose services are placed at its disposal or under its control and who 
are  directly  involved  in  the  statutory  audit  activities  have  appropriate 
knowledge and experience for the duties assigned; 

a  statutory  auditor  or  an  audit  firm  shall  establish  adequate  policies  and 
procedures  to  ensure  that  outsourcing  of  important  audit  functions  is  not 
undertaken in such a way as to impair the quality of the statutory auditor’s or 
audit  firm’s  internal  control  and  the  ability  of  the  competent  authorities  to 
supervise the statutory auditor's or audit firm's compliance with the obligations 
laid down in this Regulation; 

a  statutory  auditor  or  an  audit  firm  shall  establish  appropriate  and  effective 
organisational  and  administrative  arrangements  to  prevent,  identify,  eliminate 
or  manage  and  disclose  any  threats  to  independence  referred  to  in  Article 
11(2); 

a  statutory  auditor or  an  audit  firm shall  establish appropriate  procedures  and 
standards for carrying out statutory audits of public-interest entities, coaching, 
supervising and reviewing employees activities and organising the structure of 
the audit file referred to in Article 15(5); 

a  statutory  auditor  or  an  audit  firm  shall  establish  an  internal  quality  control 
system  to  ensure  the  quality  of  the  statutory  audit  of  public-interest  entities. 
The  quality  control  system  shall  at  least  cover  the  procedures  and  standards 
described  in  point  (f).  In  the  case  of  an  audit  firm,  the  responsibility  of  the 
internal quality control system shall be with a person that qualifies as statutory 
auditor;  

a statutory auditor or an audit firm shall use appropriate systems, resources and 
procedures  to  ensure  continuity  and  regularity  in  the  performance  of  its 
statutory audit activities; 

a statutory auditor or an audit firm shall establish a policy to preclude his, her 
or its involvement and that of his, her or its employees in any criminal offence 
or breach of the law in the conduct of their work. The statutory auditor or the 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

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26 

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(j) 

(k) 

audit  firm  shall  also  establish  appropriate  and  effective  organisational  and 
administrative  arrangements  for  dealing  with  and  recording  incidents  which 
have  or  may  have  serious  consequences  for  the  integrity  of  his,  her  or  its 
statutory audit activities; 

a  statutory  auditor  or  an  audit  firm shall have  adequate  remuneration policies 
providing  sufficient  performance  incentives  to  secure  audit  quality.  In 
particular, compensation and performance evaluation of employees shall not be 
contingent on the amount of revenue that the statutory auditor or the audit firm 
derives from the audited entity; 

a statutory auditor or an audit firm shall monitor and evaluate the adequacy and 
effectiveness  of  his,  her  or  its  systems,  internal  control  and  internal  quality 
control  mechanisms  and  arrangements  established  in  accordance  with  this 
Regulation  and  take  appropriate  measures  to  address  any  deficiencies.  A 
statutory  auditor  or  an  audit  firm  shall  in  particular  carry  out  an  annual 
evaluation  of  the  internal  quality  control  system  referred  to  in  point  (g).  A 
statutory  auditor  or  an  audit  firm  shall  keep  records  of  the  findings  of  that 
evaluation  and  any  proposed  measure  to  modify  the  internal  quality  control 
system. 

The policies and procedures referred to in the first subparagraph shall be documented 
and communicated to the employees of the statutory auditor or audit firm. 

Any  outsourcing  of  audit  functions  as  referred  to  in  point  (d)  shall  not  affect  the 
liability of the statutory auditor or audit firm towards the audited entity. 

2. 

The statutory auditor or audit firm shall take into consideration his, her or its size and 
complexity of activities when complying with the requirements of paragraph 1 of this 
Article. 

The  statutory  auditor  or  audit  firm  shall  be  able  to  demonstrate  to  the  competent 
authority referred to in Article 35(1) that such compliance is proportionate to the size 
and complexity of activities of the statutory auditor or audit firm.  

Article 7 

Independence from the audited entity 

1. 

2. 

A statutory auditor or an audit firm and any holder of voting rights in an audit firm 
shall be independent of the audited entity and shall not be involved in the decision-
taking of the audited entity. 

A statutory auditor, an audit firm, their key audit partners, their employees as well as 
any  other  natural  person  whose  services  are  placed  at  the  disposal  or  under  the 
control  of  such  auditor  or  firm  and  who  is  directly  involved  in  statutory  audit 
activities,  and  persons  closely  associated  with  them  within  the  meaning  of  Article 

EN 

27 

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1(2)  of  Commission  Directive  2004/72/EC33  shall  not  buy  or  sell  or  engage  in  any 
transaction in any financial instrument issued, guaranteed, or otherwise supported by 
any audited entity within their area of statutory audit activities other than holdings in 
diversified collective investment schemes, including managed funds such as pension 
funds or life insurance. 

3. 

Persons  or  firms  referred  to  in  paragraph  2  shall  not  participate  in  or  otherwise 
influence  the  determination  of  a  statutory  audit  of  any  particular  audited  entity  if 
they: 

(a) 

own  financial  instruments  of  the  audited  entity,  other  than  holdings  in 
diversified collective investment schemes; 

(b)  own  financial  instruments  of  any  entity  related  to  an  audited  entity,  the 
ownership  of  which  may  cause  or  may  be  generally  perceived  as  causing  a 
conflict  of  interest,  other  than  holdings  in  diversified  collective  investment 
schemes; 

(c) 

have had a recent employment, business or other relationship with the audited 
entity  that  may  cause  or  may  be  generally  perceived  as  causing  a  conflict  of 
interest. 

Persons or firms referred to in paragraph 2 shall not solicit or accept money, gifts or 
favours  from  anyone  with  whom  the  statutory  audit  or  audit  firm  has  a  contractual 
relationship. 

National  measures  on  professional  ethics  enacted  pursuant  to  Article  21(1)  of 
Directive 2006/43/EC which are not compatible with paragraphs 2, 3 and 4 shall not 
apply. 

Article 8 

Employment by public-interest entities of former statutory auditors or of employees of 
statutory auditors or audit firms 

A  statutory  auditor  or  a  key  audit  partner  who  carries  out  a  statutory  audit  of  a 
public-interest entity on behalf of an audit firm shall not, before a period of at least 
two  years  has  elapsed  since  he  or  she  resigned  as  a  statutory  auditor  or  key  audit 
partner from the audit engagement, take up any of the following duties: 

(a) 

take up a key management position in the audited entity; 

(b)  become a member of the audit committee of the audited entity or, where such 
committee  does  not  exist,  of  the  body  performing  equivalent  functions  to  an 
audit committee;  

4. 

5. 

1 

33 

OJ L 162, 30.4.2004, p.70. 

EN 

28 

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(c) 

become a non-executive member of the administrative body or a member of the 
supervisory body of the audited entity. 

2. 

Employees of a statutory auditor or an audit firm carrying out a statutory audit of a 
public-interest entity as well as any other natural person whose services are placed at 
the  disposal  or  under  the  control  of  such  auditor  or  firm  shall  not,  when  such 
employees  or  other  natural  persons  are  personally  approved  as  statutory  auditors, 
before a period of at least one year has elapsed since he or she was directly involved 
in the statutory audit activities, take up any of the duties referred to in points (a), b) 
and (c) of paragraph 1. 

Article 9 

Audit fees 

1. 

Fees  for  the  provision  of  statutory  audits  to  public-interest  entities  shall  not  be 
contingent fees.  

2. 

3. 

For  the  purposes  of  the  first  subparagraph,  contingent  fees  means  fees  for  audit 
engagements calculated on a predetermined basis relating to the outcome or result of 
a transaction or the result of the work performed. Fees shall not be regarded as being 
contingent if a court or a competent authority has established them. 

When  the  statutory  auditor  or  audit  firm  provides  to  the  audited  entity  related 
financial audit services, as referred to in Article 10(2), the fees for such services shall 
be  limited  to  no  more  than  10  %  of  the  fees  paid  by  the  audited  entity  for  the 
statutory audit.  

When  the  total  fees  received  from  a  public-interest  entity  subject  to  the  statutory 
audit represent either more than 20 % or, for two consecutive years, more than 15 % 
of the of the total annual fees received by the statutory auditor or audit firm carrying 
out the statutory audit, such auditor or firm shall disclose to the audit committee the 
fact that the total of such fees represents more than 20 % or 15 %, as appropriate, of 
the total fees received by the firm and the discussions referred to in Article 11(4)(d) 
shall  be  undertaken.  The  audit  committee  shall  consider  whether  the  audit 
engagement shall be subject to a quality control review by another statutory auditor 
or audit firm prior to the issuance of the audit report.  

When  the  total  fees  received  from  a  public-interest  entity  subject  to  the  statutory 
audit  represent,  for  two  consecutive  years,  15  %  or  more  of  the  total  annual  fees 
received  by  the  statutory  auditor  or  audit  firm  carrying  out  the  statutory  audit,  the 
auditor  or  firm  shall  inform  the  competent  authority  referred  to  in  Article  35(1)  of 
such  situation.  The  competent authority  referred  to  in  Article  35(1)  shall  decide  on 
the  basis  of  objective  grounds  provided  by  the  statutory  auditor  or  the  audit  firm 
whether the statutory auditor or audit firm of such entity may continue to carry out 
the statutory for an additional period which in any case shall not be longer than two 
years. 

Where the audited entity is exempted from the obligation to have an audit committee, 
the  audited  entity  shall  decide  which  body  or  organ  of  the entity  shall  engage  with 

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the statutory auditor or audit firm for the purposes of the obligations set out in this 
paragraph. 

Article 10 

Prohibition of the provision of non-audit services 

1. 

A  statutory  auditor  or  an  audit  firm  carrying  out  statutory  audit  of  public-interest 
entities  may  provide  to  the  audited  entity,  to  its  parent  undertaking  and  to  its 
controlled undertakings statutory audit services and related financial audit services. 

Where  the  statutory  auditor  belongs  to  a  network,  a  member  of  such  network  may 
provide  to  the  audited  entity,  to  its  parent  undertaking  and  to  its  controlled 
undertakings  within  the  Union  statutory  audit  services  or  related  financial  audit 
services. 

2. 

For the purposes of this Article, related financial audit services shall mean: 

(a) 

the audit or review of interim financial statements; 

(b)  providing assurance on corporate governance statements; 

(c) 

providing assurance on corporate social responsibility matters; 

(d)  providing  assurance  on  or  attestation  of  regulatory  reporting  to  regulators  of 
financial  institutions  beyond  the  scope  of  the  statutory  audit  and  designed  to 
assist  regulators  in  fulfilling  their  role,  such  as  on  capital  requirements  or 
specific  solvency  rations  determining  how  likely  an  undertaking  will  be  to 
continue meeting its debt obligations; 

(e) 

(f) 

providing  certification  on  compliance  with  tax  requirements  where  such 
attestation is required by national law;  

any other statutory duty related to audit work imposed by Union legislation to 
the statutory auditor or audit firm. 

3. 

A  statutory  auditor  or  an  audit  firm  carrying  out  statutory  audit  of  public-interest 
entities  shall  not  directly  or  indirectly  provide  to  the  audited  entity,  to  its  parent 
undertaking and to its controlled undertakings non-audit services. 

Where the statutory auditor belongs to a network, no member of such network shall 
provide  to  the  audited  entity,  to  its  parent  undertaking  and  to  its  controlled 
undertakings within the Union any non-audit services. 

For the purposes of this Article, non-audit services shall mean: 

(a) services entailing conflict of interest in all cases: 

(i) expert services unrelated to the audit, tax consultancy, general management 
and other advisory services; 

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(ii) bookkeeping and preparing accounting records and financial statements; 

(iii)  designing  and  implementing  internal  control  or  risk  management 
procedure  related  to  the  preparation  and/or  control  of  financing  information 
included in the financial statements and advice on risk; 

(iv)  valuation  services,  providing  fairness  opinions  or  contribution-in-kind 
reports; 

(v) actuarial and legal services, including the resolution of litigation; 

(vi) designing and implementing financial information technology systems for 
public-interest  entities  as  referred  to  in  Article  2(13)(b)  to  (j)  of  Directive 
2006/43/EC; 

(vii)  participating  in  the  audit  client's  internal  audit  and  the  provision  of 
services related to the internal audit function; 

(viii) broker or dealer, investment adviser, or investment banking services. 

(b) services which may entail conflict of interest:  

(i) human resources services, including recruiting senior management;  

(ii) providing comfort letters for investors in the context of the issuance of an 
undertaking's securities; 

(iii) designing and implementing financial information technology systems for 
public-interest  entities  as  referred  to  in  Article  2(13)(a)  of  Directive 
2006/43/EC; 

(iv) due diligence services to the vendor or the buy side on potential mergers 
and acquisitions and providing assurance on the audited entity to other parties 
at a financial or corporate transaction. 

By  derogation  from  the  first  and  second  subparagraphs,  the  services  mentioned  in 
point  (b)(iii)  and  (iv)  may  be  provided  by  the  statutory  auditor  or  the  audit  firm, 
subject to prior approval by the competent authority referred to in Article 35(1). 

By  derogation  from  the  first  and  second  subparagraphs,  the  services  mentioned  in 
point (b)(i) and (ii) may be provided by the statutory auditor or the audit firm, subject 
to prior approval  by  the  audit  committee  as  referred  to  in  Article  31  of  this 
Regulation. 

4. 

When  a  member  of  the  network  to  which  the  statutory  auditor  or  the  audit  firm 
carrying  out  statutory  audit  of  a  public-interest  entity  belongs  provides  non-audit 
services to an undertaking incorporated in a third country controlled by the audited 
public-interest  entity,  the  statutory  auditor  or  the  audit  firm  concerned  shall  assess 
whether  his,  her  or  its  independence  would  be  compromised  by  such  provision  of 
services by the member of the network. 

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If his, her or its independence is affected, the statutory auditor or the audit firm shall 
apply safeguards in order to mitigate the threats caused by such provision of services 
in a third country. The statutory auditor or the audit firm may continue to carry out 
the  statutory  audit  of  the  public-interest  entity  only  if  he,  she  or  it  can  justify,  in 
accordance with Article 11, that such provision of services does not affect his, her or 
its professional judgement and the audit report. 

Being involved in the decision-taking of the audited entity and the provision of the 
services  referred  to  in  points  (ii)  and  (iii)  of  paragraph  3(a)  shall  be  considered  as 
affecting such independence in all cases. 

The provision of the services referred to in points (i) and (iv) to (viii) of paragraph 
3(a) shall be presumed to affect such independence. 

The  statutory  auditor  or  the  audit  firm  may  consult  the  competent  authority  for  an 
opinion on this issue. 

5. 

Where an audit firm generates more than one third of its annual audit revenues from 
large  public-interest  entities  and  belongs  to  a  network  whose  members  have 
combined  annual  audit  revenues  which  exceed  EUR  1  500  million  within  the 
European Union, it shall comply with the following conditions: 

(a) 

(b) 

(c) 

(d) 

(e) 

it shall not directly or indirectly provide to any public interest entity non-audit 
services; 

it  shall  not  belong  to  a network  which  provides  non-audit  services  within  the 
Union;  

any entity which provides the services listed in paragraph 3 shall not directly or 
indirectly hold more than 5 % of the capital or of the voting rights in the audit 
firm; 

the entities which provide the services listed in paragraph 3shall not directly or 
indirectly hold together more than 10 % of the capital or of the voting rights in 
the audit firm; 

such audit firm shall not directly or indirectly hold more than 5 % of the capital 
or  of  the  voting  rights  in  any  entity  which  provides  the  services  listed  in 
paragraph 3. 

6. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  68  for  the  purpose  of  adapting  the  list  of  related  financial  audit  services 
referred to in paragraph 2 and the list of non-audit services referred to in paragraph 3 
of  this  Article.  When  using  such  powers,  the  Commission  shall  take  into  account 
developments in auditing and the audit profession. 

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Article 11 

Preparation for the statutory audit and assessment of threats to independence 

1. 

Before  accepting  or  continuing  an  engagement  for  a  statutory  audit  of  a  public-
interest  entity,  a  statutory  auditor  or  audit  firm  shall  assess  and  document  the 
following:  

– 

– 

– 

– 

– 

– 

whether  he,  she  or  it  complies  with  the  internal  organisation  requirements  of 
Article 6; 

whether he, she or it complies with the requirements of Articles 7, 9 and 10; 

whether he, she or it has the competent employees, time and resources to carry 
out the audit in an appropriate manner; 

whether,  in  the  case  of  an  audit  firm,  the  key  audit  partner  is  approved  as 
statutory auditor in the Member State requiring the statutory audit;  

whether the conditions of Article 33 are complied with;  

without prejudice to Directive 2005/60//EC, the integrity of the public-interest 
entity.  

2. 

The statutory auditor or audit firm shall also assess whether there are threats to his, 
her or its independence. 

The statutory auditor or audit firm shall not carry out a statutory audit if there is any 
direct  or  indirect  financial,  business,  employment  or  other  relationship  between  the 
statutory  auditor,  audit  firm,  or  network  and  the  audited  entity  from  which  an 
objective,  reasonable  and  informed  third  party  would  conclude  that  the  statutory 
auditor's or audit firm's independence is compromised. 

If  the  statutory  auditor's  or  audit  firm's  independence  is  affected  by  threats  of  self-
review  or  self-interest,  the  statutory  auditor  or  audit  firm  shall  not  carry  out  the 
statutory audit. 

If  the  statutory  auditor's  or  audit  firm's  independence  is  affected  by  threats  of 
advocacy, familiarity or trust or intimidation, the statutory auditor or audit firm shall 
apply safeguards in order to mitigate those threats. If the significance of the threats 
compared  to  the  safeguards  applied  is  such  that  his,  her  or  its  independence  is 
compromised,  the  statutory  auditor  or  audit  firm  shall  not  carry  out  the  statutory 
audit. 

3. 

A statutory auditor or audit firm shall keep records of the assessments referred to in 
paragraphs  1  and  2  and  shall  document  in  the  audit  working  papers  all  significant 
threats  to  his,  her  or  its  independence  as  well  as  the  safeguards  applied  to  mitigate 
those threats.  

4 

A statutory auditor or audit firm shall: 

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(a) 

(b) 

(c) 

(d) 

(e) 

confirm annually in writing to the audit committee his, her or its independence 
from the audited entity; 

confirm  annually  in  writing  to  the  audit  comittee  the  names  of  the  audit 
partners, senior manager and manager of the core team conducting the statutory 
audit, certifying that there are no conflicts of interest; 

request permission from the audit committee to provide the non-audit services 
referred to in Article 10(3)(b)(i) and (ii) to the audited entity; 

request permission from the competent authority referred to in Article 35(1) to 
provide the non-audit services referred to in Article 10(3)(b)(iii) and (iv) to the 
audited entity; 

discuss  with  the  audit  committee  the  threats  to  their  independence  and  the 
safeguards applied to mitigate those threats, as documented by them pursuant 
to paragraph 3. 

Where the audited entity is exempted from the obligation to have an audit committee, 
the  audited  entity  shall  decide  which  body  or  organ  of  the  entity  shall  perform  the 
functions assigned to the audit committee in this paragraph. 

CHAPTER II 

CONFIDENTIALITY AND PROFESSIONAL SECRECY 

Article 12 

Confidentiality and professional secrecy 

Statutory  auditors  or  audit  firms,  including  those  who  have  ceased  to  be  engaged  in  a 
particular audit assignment and former statutory auditors or audit firms, shall not invoke the 
rules  on  confidentiality  and  professional  secrecy  referred  to  in  Article  23(1)  of  Directive 
2006/43/EC to prevent the application of the provisions of this Regulation.  

Article 13 

Disclosure to third-country auditors and to third country authorities 

1. 

Where  a  statutory  auditor  or  an  audit  firm  carries  out  statutory  audit  of  a  public-
interest entity which is part of a group of undertakings whose parent undertaking is 
situated in a third country, the confidentiality and professional secrecy rules referred 
to  in  Article  23(1)  of  Directive  2006/43/EC  shall  not  impede  the  transfer  by  the 
statutory auditor or audit firm of relevant documentation of the audit work performed 
to the group auditor situated in a third country if such documentation is exclusively 
necessary for the preparation of the audit of consolidated financial statements of the 
parent undertaking.  

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2. 

1. 

2. 

The  transfer  of  information  to  the  group  auditor  situated  in  a  third  country  shall 
comply with Chapter IV of Directive 95/46/EC and the applicable national rules on 
personal data protection. 

A  statutory  auditor  or  audit  firm  that  carries  out  statutory  audit  of  a  public-interest 
entity which has issued securities in a third country or which forms part of a group 
issuing  statutory  consolidated  financial  statements  in  a  third  country  may  only 
transfer  the  audit  working  papers  or  other  documents  related  to  the  audit  of  that 
entity  that  he,  she  or  it  holds  to  the  competent  authorities  in  the  relevant  third 
countries under the conditions set out in Article 47 of Directive 2006/43/EC. 

CHAPTER III 

PERFORMANCE OF THE STATUTORY AUDIT  

Article 14 

Scope of the statutory audit 

When carrying out the statutory audit of a public-interest entity, the statutory auditor 
or audit firm shall take the necessary steps with a view to forming an opinion as to 
whether the annual or consolidated financial statements of the public-interest entity 
give  a  true  and  fair  view  in  accordance  with  the  relevant  financial  reporting 
framework  and,  where  appropriate,  whether  such  annual  or  consolidated  financial 
statements comply with statutory requirements as referred to in Article 22.  

Such steps shall include at least the requirements set out in Articles 15 to 20. 

The  opinion  of  the  statutory  auditor  or  audit  firm  shall  be  expressed  in  accordance 
with Articles 21 to 25. 

Without prejudice to the reporting requirements as referred to in Articles 22 and 23, 
the scope of statutory audit shall not include the assurance on the future viability of 
the audited entity nor the efficiency or effectiveness with which the management or 
administrative body has conducted or will conduct the affairs of the entity. 

Article 15 

Professional scepticism 

When carrying out the statutory audit of a public-interest entity, the statutory auditor or audit 
firm  shall  maintain  professional  scepticism  throughout  the  audit,  recognizing  the  possibility 
that a material misstatement due to facts or behaviour indicating irregularities, including fraud 
or error could exist, notwithstanding the auditor's or firm's past experience of the honesty and 
integrity of the audited entity's management and of the persons charged with its governance.  

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The  statutory  auditor  or  the  audit  firm  shall  maintain  professional  scepticism  in  particular 
when reviewing management estimates relating to fair values and the impairment of goodwill 
and other intangible and future cash flow relevant to the consideration of the going concern. 

For  the  purposes  of  this  Article,  'professional  scepticism'  means  an  attitude  that  includes  a 
questioning mind, being alert to conditions which may indicate possible misstatement due to 
error or fraud and a critical assessment of audit evidence. 

Article 16 

Organisation of the work 

1. 

2. 

3. 

When  the  statutory  audit  of  a  public-interest  entity  is  carried  out  by  an  audit  firm, 
that  audit  firm  shall  designate  at  least  one  key  audit  partner.  The  audit  firm  shall 
provide the designated audit partner(s) with sufficient ressources to carry out his, her 
or their duties appropriately.  

Securing  audit  quality,  independence  and  competence  shall  be  the  main  criteria  for 
the audit firm to select the key audit partner(s) to be designated. 

The designated audit partner(s) shall be actively involved in the carrying out of the 
statutory audit. 

When  the  statutory  audit  of  a  public-interest  entity  is  carried  out  by  a  statutory 
auditor,  he  or  she  shall  devote  sufficient  time  to  the  engagement  and  shall  assign 
sufficient  ressources  among  his  or  her  employees  to  carry  our  his  or  her  duties 
appropriately.  

The statutory auditor or the audit firm shall keep records of the cases in which their 
employees  do  not  respect  this  Regulation.  They  shall  also  keep  records  of  any 
consequence thereof, including the measures taken towards those employees and the 
measures taken to modify the internal quality control system. The statutory auditor or 
the audit firm shall prepare an annual report with an overview of any such measures 
taken and communicate it to the employees. 

When the statutory auditor or the audit firm ask external experts for advice, he, she 
or it shall document the request made and advice received.  

4. 

A  statutory  auditor  or  an  audit  firm  shall  maintain  a  client  account  record.  Such 
record shall include the following data for each audit client: 

(a) 

the name, the address and the place of business; 

(b) 

in the case of an audit firm, the key audit partner(s); 

(c) 

the fees charged for the statutory audit and the fees charged for other services 
in any financial year. 

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5. 

A statutory auditor or an audit firm shall create an audit file for each statutory audit 
carried  out.  The  audit  file  shall  contain  at  least  the  following  data  and  documents, 
either in paper form or in electronic form: 

(a) 

the  contract  between  the  statutory  auditor  or  the  audit  firm  and  the  audited 
entity, and any amendments thereto; 

(b) 

the correspondence with the audited entity related to the statutory audit; 

(c) 

an audit plan setting out the probable scope and method of the statutory audit; 

(d) 

a description of the nature and the extent of the auditing activities carried out; 

(e) 

the  starting  and  ending  dates  of  the  phases  of  audit  procedures  set  out  in  the 
audit plan; 

(f) 

the principal findings of the audit procedures carried out; 

(g) 

the conclusions drawn from the findings referred to under point (f); 

(h) 

the opinion of the statutory auditor or the key audit partner as evidenced by the 
drafts of the reports referred to in Articles 22 and 23;  

(i) 

(j) 

the  data  recorded  pursuant  to  Article  11(3),  Article  16(3),  Articles  17  and  18 
and 19(6);  

other  relevant  data  and  documents  that  are  of  importance  in  support  of  the 
reports  referred  to  in  Articles  22  and  23  and  for  monitoring  compliance  with 
this Regulation and other applicable legal requirements.  

The audit file shall be closed no later than two months after the date of signature of 
the audit report referred to in Article 22.  

6. 

The statutory auditor or the audit firm shall keep records of any complaints about the 
performance of the statutory audits.  

Article 17 

Market integrity 

1. 

Where an incident which has or may have serious consequences for the integrity of 
the  statutory  audit  activities  of  a  statutory  auditor  or  an  audit  firm  occurs,  the 
statutory auditor or the audit firm shall:  

(a) 

keep record of the incident; 

(b) 

take  appropriate  measures  with  a  view  to  managing  the  consequences  of  the 
incident and prevent any recurrence; 

(c) 

inform the competent authority referred to in Article 35(1) of the incident. 

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The record referred in point (a) of the first subparagraph shall include the facts and 
circumstances of the incident, information about the person or persons involved and 
details  of  the  measures  that  have  been  taken  pursuant  to  point  (b)  of  that 
subparagraph. 

2. 

Without prejudice to Directive 2005/60/EC, when a statutory auditor or an audit firm 
carrying out the statutory audit of a public-interest entity suspects or has reasonable 
grounds  to  suspect  that  facts  or  behaviour  indicating  irregularities,  including  fraud 
with  regard  to  the  financial  statements  of  the  audited  entity  is  being  or  has  been 
committed or attempted, he, she or it shall inform the audited entity and invite it to 
investigate the matter and take appropriate measures to deal with such irregularities 
and to prevent any recurrence of such irregularities in the future. 

Where  the  audited  entity  does  not  investigate  the  matter  or  does  not  take  any 
measures,  or  where  the  statutory  auditor  or  audit  firm  believes  that  the  measures 
taken  by  the  audited  entity  are  not  adequate  to  deal  with  such  irregularities,  the 
statutory  auditor  or  audit  firm  shall  inform  the  competent  authorities  supervising 
public-interest entities of such irregularities.  

The disclosure in good faith to the competent authorities, by the statutory auditor or 
audit  firm,  of  any  fact  referred  to  in  the  first  subparagraph  shall  not  constitute  a 
breach of any contractual or legal restriction on disclosure of information and shall 
not involve such persons in liability of any kind.  

Article 18 

Audit of consolidated financial statements 

1 

In the case of a statutory audit of the consolidated financial statements of a group of 
undertakings  where  the  parent  undertaking  is  a  public-interest  entity,  the  group 
auditor shall: 

(a) 

bear the full responsibility for the audit report referred to in Article 22 and the 
additional  report  to  the  audit  committee  referred  to  in  Article  23  in  relation 
with the consolidated financial statements;  

(b)  document which audit work is 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;  

(c) 

carry out a review and maintain documentation of his, her or its 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  enable  the  relevant 
competent authority to review the work of the group auditor properly. 

For the purpose of point (c) of the first subparagraph, the group auditor shall secure 
the agreement of the third-country auditor(s), statutory auditor(s), third-country audit 
entity(ies) or audit firm(s) to the transfer of relevant documention during the conduct 
of the audit of consolidated financial statements, as a condition of the reliance by the 

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2. 

3. 

group auditor on the work of that third-country auditor(s), statutory auditor(s), third-
country audit entity(ies) or audit firm(s). 

Where  the  group  auditor  is  not  in  a  position  to  comply  with  point  (c)  of  the  first 
subparagraph of paragraph 1, he, she or it shall take appropriate measures and inform 
the competent authority referred to in Article 35(1) accordingly.  

Such  measures  may  include  carrying  out  additional  statutory  audit  work,  either 
directly or by outsourcing such tasks, in the relevant subsidiary of the public-interest 
entity. 

Where the group auditor is subject to a quality assurance review or an investigation 
concerning the statutory audit of the consolidated financial statements of a group of 
undertakings  where  the  parent  undertaking  is  a  public-interest  entity,  the  group 
auditor shall, when requested, make available to the competent authority the relevant 
documention  he,  she  or  it  mantains  concerning  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, including the working papers relevant to the group 
audit.  

The  competent  authority  shall  request  additional  documentation  on  the  audit  work 
performed by statutory auditor(s) or audit firm(s) for the purpose of the audit group 
to  the  relevant  competent  authorities  pursuant  to  Chapter  III  of  Title  IV  of  this 
Regulation. 

When  a  component  of  a  group  of  undertakings  is  audited  by  auditor(s)  or  audit 
entity(ies)  from  a  third  country,  the  competent  authority  shall  request  additional 
documentation  on  the  audit  work  performed  by  third-country  auditor(s)  or  third-
country  audit  entity(ies)  to  the  relevant  competent  authorities  from  third  countries 
through the working arrangements referred to in Article 47 of Directive 2006/43/EC.  

By way of derogation from the third subparagraph, when a component of a group of 
undertakings is audited by auditor(s) or audit entity(ies) from a third country that has 
no  working  arrangement  as  referred  to  in  Article  47  of  Directive  2006/43/EC,  the 
group auditor shall, when requested, also be responsible for ensuring proper delivery 
of  the  additional  documentation  of  the  audit  work  performed  by  third-country 
auditor(s)  or  audit  entity(ies),  including  the  working  papers  relevant  to  the  group 
audit.  To  ensure  such  delivery,  the  group  auditor  shall  retain  a  copy  of  such 
documentation,  or  alternatively  agree  with  the  third-country  auditor(s)  or  audit 
entity(ies)  his,  her  or  its  proper  and  unrestricted  access  upon  request,  or  take  any 
other  appropriate  action.  Where  audit  working  papers  for  legal  or  other  reasons 
cannot  be  passed  from  a  third  country  to  the  group  auditor,  the  documentation 
retained by the group auditor shall include evidence that he or she has undertaken the 
appropiate procedures in order to gain access to the audit documentation, and in the 
case  of  impediments  other  than  legal  ones  arising  from  the  legislation  of  the  third 
country, evidence supporting such an impediment.  

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Article 19 

Internal quality control review 

1. 

2. 

3. 

Before  the  reports  referred  to  in  Articles  22  and  23  are  issued,  an  internal  quality 
control review shall be performed to assess whether the statutory auditor or the key 
audit partner could reasonably have come to the opinion and conclusions expressed 
in the draft of these reports.  

The internal quality control review shall be performed by an internal quality control 
reviewer.  Such  reviewer  shall  be  a  statutory  auditor  who  is  not  involved  in  the 
performance of the statutory audit to which the internal quality review relates. 

When  reviewing  the  internal  quality  control,  the  reviewer  shall  record  at  least  the 
following: 

(a) 

the oral and written information provided by the statutory auditor or key audit 
partner to support the main findings of the audit procedures carried out and the 
conclusions  drawn  from  those  findings,  whether  or  not  at  the  request  of  the 
internal quality control reviewer; 

(b) 

the audited financial statements; 

(c) 

(d) 

the main findings of the audit procedures carried out and the conclusions drawn 
from those findings; 

the  opinions  of  the  statutory  auditor  or  key  audit  partner,  as  expressed  in  the 
draft of the reports referred to in Articles 22 and 23; 

4. 

The internal quality control review shall at least assess the following elements: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

the  independence  of  the  statutory  auditor  or  audit  firm  with  from  the  audited 
entity; 

the significant risks that the statutory auditor or key audit partner has identified 
during the performance of the statutory audit and the measures that he or she 
has taken to adequately manage those risks; 

the  reasoning  of  the  statutory  auditor  or  key  audit  partner,  in  particular  with 
regard to the materiality and the significant risks referred to in point (b); 

any  request  for  advice  to  external  experts  and  the  implementation  of  such 
advice; 

the  nature  and  scope  of  the  corrected  and  uncorrected  misstatements  in  the 
financial statements that were identified during the performance of the audit; 

the  subjects  discussed  with  the  audit  committee  and  the  management  and/or 
supervisory bodies of the audited entity;  

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(g) 

the subjects discussed with competent authorities and, if applicable, with other 
third parties;  

(h)  whether  the  documents  and  information  selected  from  the  file  satisfactorily 
reflect the positions taken by the employees involved in the audit, and whether 
such documents and information support the opinion of the statutory auditor or 
key audit partner as expressed in the draft of the reports referred to in Articles 
22 and 23. 

5. 

6. 

The internal quality control reviewer shall discuss the results of the internal quality 
control  review  with  the  statutory  auditor  or  the  key  audit  partner.  The  statutory 
auditor  or  the  audit  firm  shall  determine  the  procedure  to  be  followed  when  the 
reviewer and the statutory auditor or the key audit partner do not agree on the results 
of the review. 

The statutory auditor or the audit firm shall keep record of the results of the internal 
quality control review, together with the considerations underlying those results.  

Article 20 

Use of international standards on auditing  

The  statutory  auditor(s)  or  the  audit  firm(s)  shall  comply  with  the  international  auditing 
standards  referred  to  in  Article  26  of  Directive  2006/43/EC  when  carrying  out  the  statutory 
audit  of  public-interest  entities  as  long  as  those  standards  are  in  conformity  with  the 
requirements of this Regulation.  

CHAPTER IV 

AUDIT REPORTING 

Article 21 

Results of the statutory audit 

The  statutory  auditor  or  the  audit  firm  shall  present  the  results  of  the  statutory  audit  in  the 
following reports: 

– 

– 

an audit report in accordance with Article 22; 

an additional report to the audit committee in accordance with Article 23. 

The  statutory  auditor  or  the  audit  firm  shall  present  the  results  of  the  statutory  audit  to  the 
audit  committee  of  the  audited  entity  in  accordance  with  Article  24  and  to  supervisors  of 
public-interest entities in accordance with Article 25. 

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Article 22 

Audit Report 

1. 

2. 

The statutory auditor or the audit firm shall present the results of the statutory audit 
of the public-interest entity in an audit report.  

The audit report shall be in writing. It shall at least: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

identify the entity whose annual or consolidated financial statements have been 
audited;  

specify the annual or consolidated financial statements and the date and period 
they cover;  

explain,  where  additional  reports  have  been  reviewed,  the  scope  of  such 
review;  

identify which body within the audited entity appointed the statutory auditor(s) 
or the audit firm(s);  

indicate  the  date  of  the  appointment  and  the  period  of  total  uninterrupted 
engagement including previous renewals and reappointments; 

indicate  that  the  statutory  audit  was  conducted  in  accordance  with  the 
international standards on auditing as referred to in Article 20;  

identify  the  financial  reporting  framework  that  has  been  applied  in  the 
preparation of the financial statements;  

(h)  describe the used methodology, including how much of the balance sheet has 
been directly verified and how much has been based on system and compliance 
testing;  

(i) 

(j) 

(k) 

(l) 

explain  any  variation  in  the  weighting  of  substantive  and  compliance  testing 
when compared to the previous year, even if the previous year's statutory audit 
had been conducted by another statutory auditor(s) or audit firm(s); 

lay  out  the  details  of  the  level  of  materiality  applied  to  perform  the  statutory 
audit; 

identify  key  areas  of  risk  of  material  misstatement  of  the  annual  or 
consolidated  financial  statements,  including  critical  accounting  estimates  or 
areas of measurement uncertainty; 

provide a statement on the the situation of the audited entity or, in case of the 
statutory  audit  of  consolidated  financial  statements,  of  the  parent  undertaking 
and  the  group,  especially  an  assessment  of  the  entity's  or  the  parent 
undertaking's  and  group's  ability  to  meet  its/their  obligation  in  the  forseeable 
future and therefore continue as a going concern;  

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(m)  assess  the  entity's  or,  in  case  of  consolidated  financial  statements,  the  parent 
undertaking's  internal  control  system,  including  significant  internal  control 
deficiencies  identified  during  the  statutory  audit,  as  well  as  the  bookkeeping 
and accounting system; 

(n) 

(o) 

explain to what extent the statutory audit was designed to detect irregularities, 
including fraud; 

indicate  and  explain  any  violation  of  accounting  rules  or  violation  of  laws  or 
the  articles  of  incorporations,  accounting  policy  decisions  and  other  matters 
that are significant for the governance of the entity;  

(p) 

confirm  that  the  audit  opinion  is  consistent  with  the  additional  report  to  the 
audit committee referred to in Article 23; 

(q)  declare  that  the  non-audit  services  referred  to  in  Article  10(3)  were  not 
provided  and  that  the  statutory  auditor(s)  or  the  audit  firm(s)  remained 
completely independent in conducting the audit. Where the statutory audit was 
carried out by an audit firm, the report shall identify each member of the audit 
engagement  team  and  shall  state  that  all  members  remained  completely 
independent and had no direct or indirect interest in the audited entity; 

(r) 

(s) 

(t) 

indicate the non-audit services referred to in Article 10(3)(b)(i) and (ii) that the 
audit committee allowed the statutory auditor or the audit firm to provide to the 
audited entity; 

indicate the non-audit services referred to in Article 10(3)(b)(iii) and (iv) that 
the  competent  authority  referred  to  in  Article  35(1)  allowed  the  statutory 
auditor or the audit firm to provide to the audited entity; 

give an opinion which shall state clearly the opinion of the statutory auditor(s) 
or  the  audit  firm(s)  as  to  whether  the  annual  or  consolidated  financial 
statements give a true and fair view and have been prepared in accordance with 
the relevant financial reporting framework and, where appropriate, whether the 
statutory 
annual  or  consolidated 
requirements;  the  audit  opinion  shall  be  either  unqualified,  qualified,  an 
adverse  opinion  or,  if  the  statutory  auditor(s)  or  audit  firm(s)  are  unable  to 
express an audit opinion, a disclaimer of opinion. In case of a qualified or an 
adverse opinion or a disclaimer of opinion, the report shall explain the reasons 
of such decision; 

statements  comply  with 

financial 

(u) 

refer to any matters to which the statutory auditor(s) or the audit firm(s) draw 
attention by way of emphasis without qualifying the audit opinion; 

(v)  give  an  opinion  concerning  the  consistency  or  otherwise  of  the  annual  report 

with the annual financial statements for the same fiscal year;  

(w) 

identify where the statutory auditor(s) or audit firm(s) is established. 

3. 

When more than one statutory auditor or audit firm have been appointed to carry out 
the statutory audit of the public-interest entity, they shall agree on the results of the 
statutory audit and submit a joint report and opinion. In case of disagreement, each 

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4. 

5. 

6. 

7. 

1. 

statutory auditor or audit firm shall submit his, her or its opinion separately. If one 
statutory  auditor  or  audit  firm  qualifies  his,  her  or  its  opinion,  submits  an  adverse 
opinion  or  a  disclaimer  of  opinion,  the  overall  opinion  shall  be  considered  as 
qualified,  adverse  opinion  or  a  disclaimer  of  opinion.  In  a  separate  paragraph  each 
statutory auditor or audit firm shall state the reasons of disagreement. 

The  audit  report  shall  not  be  longer  than  four  pages  or  10000  characters  (without 
spaces). It shall not contain any cross-references to the additional report to the audit 
committee referred to in Article 23. 

The  audit  report  shall  be  signed  and  dated  by  the  statutory  auditor(s)  or  the  audit 
firm(s). Where an audit firm carries out the statutory audit, the audit report shall be 
signed by at least the statutory auditor(s) carrying out the statutory audit on behalf of 
the audit firm.  

Article  35  of  Directive  [XXX]  on  the  annual  financial  statements,  consolidated 
financial  statements  and  related  reports  of  certain  types  of  undertakings  shall  not 
apply to audit reports of public-interest entities.  

The statutory auditor or audit firm shall not use the name of any competent authority 
in  such  a  way  that  would  indicate  or  suggest  endorsement  or  approval  by  that 
authority of the audit report.  

Article 23 

Additional report to the audit committee 

The  statutory  auditor(s)  or  the  audit  firm(s)  carrying  out  statutory  audit  of  public-
interest entities shall submit an additional report to the audit committee of the audited 
entity. 

If the audited entity does not have an audit committee, the additional report shall be 
submitted to the body performing equivalent functions within the audited entity. 

The audit committee or the body performing equivalent functions shall be allowed to 
transmit the additional report to the management, administrative or supervisory body 
of the audited entity.  

The additional report shall be disclosed to the general meeting of the audited entity if 
the management or administrative body of the audited entity so decides. 

2. 

The  additional  report  to  the  audit  committee  shall  be  in  writing.  It  shall  explain  in 
detail and explicitly the results of the statutory audit carried out and shall at least:  

(a) 

(b) 

include  a  declaration  of  independence  as  provided  for  in  point  (q)  of  Article 
22(2); 

identify  the  dates  of  the  meetings  with  the  audit  committee  or  the  body 
performing equivalent functions within the audited entity; 

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(c) 

identify the dates of the meetings, if any, with the management, administrative 
or supervisory body of the audited entity;  

(d)  describe the appointment procedure; 

(e) 

(f) 

describe  the  distribution  of  tasks  among  the  statutory  auditor(s)s  and/or  the 
audit firm(s);  

indicate and explain judgments about material uncertainty that may cast doubt 
about the entity's ability to continue as a going concern; 

(g)  determine  in  detail  whether  the  bookkeeping,  the  accounting,  all  audited 
documents,  the  annual  or  consolidated  financial  statements  and  possible 
additional reports show appropriateness; 

(h) 

(i) 

(j) 

(k) 

(l) 

(m) 

indicate  and  explain  in  detail  all  instances  of  non-compliance,  including  non-
material  instances  as  far  as  it  is  considered  to  be  important  to  the  audit 
committee in order to fulfil its tasks; 

assess  the  valuation  methods  applied  to  the  various  items  in  the  annual  or 
consolidated financial statements including any impact of changes of such; 

provide  full  details  of  all  guarantees,  comfort  letters,  undertakings  of  public 
intervention  and  other  support  measures  that  have  been  relied  upon  when 
making a going concern assessment; 

confirm  the  attendance  at  stock  takes  as  well  as  other  instances  of  physical 
verification, in case such stock takes or verifications took place;  

indicate  and  explain  the  principles  of  consolidation  in  the  case  of  a  statutory 
audit of consolidated financial statements;  

indicate  which  audit  work  is  performed  by  third-country  auditor(s),  statutory 
auditor(s), third-country audit entity(ies) or audit firm(s) in case of a statutory 
audit of consolidated financial statements; 

(n) 

indicate  whether  all  requested  explanations  and  documents  were  provided  by 
the audited entity. 

3. 

4. 

5. 

In  case  of  disagreement  between  the  appointed  statutory  auditors  or  audit  firms  on 
auditing procedures, accounting rules or any other issue regarding the conduct of the 
statutory audit, the reasons for such disagreement shall be explained in the additional 
report to the audit committee. 

The  additional  report  to  the  audit  committee  shall  be  signed  and  dated  by  the 
statutory auditor(s) or the audit firm(s). Where an audit firm carries out the statutory 
audit,  the  additional  report  to  the  audit  committee  shall  be  signed  by  at  least  the 
statutory auditor(s) carrying out the statutory audit on behalf of the audit firm. 

Upon  request,  the  statutory  auditor(s)  or  the  audit  firm(s)  shall  make  available 
without delay the additional report to the competent authorities. 

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Article 24 

Oversight of the statutory audit by the audit committee 

The  audit  committee  of  the  public-interest  entity  shall  monitor  the  work  of  the  statutory 
auditor(s) or audit firm(s) carrying out the statutory audit. 

The  statutory  auditor(s)  or  audit  firm(s)  shall  report  to  the  audit  committee  on  key  matters 
arising from the statutory audit, and in particular on material weaknesses in internal control in 
relation  to  the  financial  reporting  process.  Upon  request  of  any  of  the  parties,  the  statutory 
auditor(s) or audit firm(s) shall discuss these matters with the audit committee.  

The audit committee shall inform the administrative or supervisory body of the audited entity 
of  the  outcome  of  the  statutory  audit.  The  audit  committee  shall  explain  how  the  statutory 
audit contributed to the integrity of financial reporting and which was its role in this process.  

In is the instance of the audited entity being exempted from the obligation to have an audit 
committee, the audited entity shall decide which body or organ of the entity shall engage with 
the statutory auditor or audit firm for the purposes of the obligations set out in this Article. 

Article 25 

Report to supervisors of public-interest entities 

1. 

Without  prejudice  to  Article  55  of  Directive  2004/39/EC,  Article  53  of  Directive 
2006/48/EC  of  the  European  Parliament  and  of  the  Council34,  Article  15(4)  of 
Directive  2007/64/EC,  Article  106  of  Directive  2009/65/EC,  the  first  paragraph  of 
Article 3 of Directive 2009/110/EC and Article 72 of Directive 2009/138/EC of the 
European Parliament and of the Council35, the statutory auditor or audit firm carrying 
out the statutory audit of a public-interest entity shall have a duty to report promptly 
to the competent authorities supervising public-interest entities any fact or decision 
concerning that public-interest entity of which he, she or it has become aware while 
carrying  out  that  statutory  audit  and  which  is  liable  to  bring  about  any  of  the 
following: 

(a) 

a  material  breach  of  the  laws,  regulations  or  administrative  provisions  which 
lay down, where appropriate, the conditions governing authorisation or which 
specifically govern pursuit of the activities of such public-interest entity; 

(b) 

the impairment of the continuous functioning of the public-interest entity;  

(c) 

a refusal to certify the financial statements or the expression of reservations. 

The statutory auditor or the audit firm shall also have a duty to report any facts and 
decisions  of  which  he,  she  or  it  becomes  aware  in  the  course  of  carrying  out  the 

34 
35 

OJ L 177, 30.6.2006, p.1. 
OJ L 335, 17.12.2009, p.1. 

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2. 

3. 

statutory audit of an undertaking having close links with the public-interest entity for 
which he, she or it is also carrying out the statutory audit. 

Competent  authorities  supervising  credit  institutions  and  insurance  undertakings 
shall establish regular a dialogue with the statutory auditors and audit firms carrying 
out the statutory audit of those institutions and undertakings.  

In  order  to  facilitate  the  exercise  of  the  tasks  referred  to  in  the  first  subparagraph, 
EBA  and  EIOPA  shall  issue  guidelines  addressed  to  the  competent  authorities 
supervising credit institutions and insurance undertakings, in accordance with Article 
16  of  Regulation  (EU)  No  1093/2010  and  of  Regulation  (EU)  No  1094/2010, 
respectively.  

The disclosure in good faith to the competent authorities, by the statutory auditor or 
audit firm, of any fact or decision referred to in paragraph 1 or of any fact during the 
dialogue foreseen in paragraph 2 shall not constitute a breach of any contractual or 
legal  restriction  on  disclosure  of  information  and  shall  not  involve  such  persons  in 
liability of any kind. 

CHAPTER V 

TRANSPARENCY REPORTING BY STATUTORY AUDITORS AND AUDIT FIRMS AND 
RECORD KEEPING 

Article 26 

Disclosure of financial information 

1. 

2. 

3. 

An  audit  firm  that  carries  out  statutory  audits  of  public-interest  entities  shall  make 
public  its  annual  financial  report  within  the  meaning  of  Article  4(2)  of  Directive 
2004/109/EC at the latest four months after the end of each financial year.  

Statutory  auditors  who  carry  out  statutory  audits  of  public-interest  entities  shall 
publish their annual income statement.  

The  annual  financial  report  and  the  annual  income  statement  shall  show  the  total 
turnover  divided  into  fees  from  the  statutory  audit  of  annual  and  consolidated 
financial  statements  of  public-interest  entities  and  entities  belonging  to  a  group  of 
undertakings  whose  parent  undertaking  is  a  public-interest  entity,  fees  from  the 
statutory audit of annual  and consolidated financial statements of other entities and 
fees charged for related financial audit services as defined in Article 10(2).  

The  annual  financial  report  or  the  annual  income  statement  shall  be  audited  in 
accordance with the provisions of this Regulation. 

Where  the  statutory  auditor  or  the  audit  firm  belongs  to  a  network,  the  statutory 
auditor  or  the  audit  firm  shall  provide  the  following  additional  information  in  the 
annual financial report or as an annex to the annual income statement: 

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(a) 

the name of each statutory auditor or audit firm belonging to the network; 

(b) 

(c) 

(d) 

the country(ies) in which each statutory auditor or audit firm belonging to the 
network is qualified as statutory auditor or has his, her or its registered office, 
central administration or principal place of business; 

the total turnover generated by the statutory auditors and audit firms belonging 
to  the  network,  resulting  from  the  statutory  audit  of  annual  and  consolidated 
financial statements;  

the audited consolidated financial statements for the network and, where there 
is a legal entity governing the network, the audited financial statements of such 
legal entity prepared in accordance with Article 4(3) of Directive 2004/109/EC.  

By derogation from the first subparagraph, the statutory auditor or the audit firm may 
not  provide  the  additional  information  where  it  is  disclosed  by  the  legal  entity 
governing  the  network  or  another  representative  of  the  network.  In  this  case,  the 
statutory  auditor  or  the  audit  firm  shall  indicate  in  the  annex  to  the  annual  income 
statement or to the annual financial report where that information is accessible. 

4. 

The  annual  financial  report  or  annual  income  statement  shall  be  published  on  the 
website of the statutory auditor or the audit firm and shall remain available on that 
website for at least five years.  

Statutory  auditors  and  audit  firms  shall  communicate  to  the  competent  authorities 
that  the  annual  income  statement  or  to  the  annual  financial  report  have  been 
published on the websites of the statutory auditor or the audit firm.  

Article 27 

Transparency Report 

1. 

A  statutory  auditor  or  an  audit  firm  that  carries  out  statutory  audit(s)  of  public-
interest  entities  shall  make  public  an  annual  transparency  report  at  the  latest  three 
months after the end of each financial year. The annual transparency report shall be 
published  on  the  website  of  the  statutory  auditor  or  audit  firm  and  shall  remain 
available on that website for at least five years. 

A  statutory  auditor  or  audit  firm  shall  be  allowed  to  update  its  published  annual 
transparency report. In such a case, the auditor or firm indicate that it is an updated 
version of the report and the original version of the report shall continue to remain 
available on the website. 

Statutory auditors and audit firms shall communicate to ESMA and to the competent 
authorities  that  the  transparency  report  has  been  published  on  the  website  of  the 
statutory auditor or audit firm or, as appropriate, that it has been updated. 

2. 

The annual transparency report shall include at least the following: 

(a) 

a description of the legal structure and ownership of the audit firm;  

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(b)  where the statutory auditor or 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) 

(e) 

(f) 

(g) 

(h) 

a  description  of  the  internal  quality  control  system  of  the  audit  firm  and  a 
statement by the administrative or management body on the effectiveness of its 
functioning;  

an indication of when the last quality assurance review referred to in Article 40 
was carried out;  

a list of public-interest entities for which the statutory auditor or audit firm has 
carried out statutory audits during the preceding financial year and a list of the 
entities from which the statutory auditor or audit firm receives more than 5% of 
its annual revenue; 

a  statement  concerning  the  statutory  auditor's  or  audit  firm's  independence 
practices  which  also  confirms  that  an  internal  review  of  independence 
compliance has been conducted;  

a  statement  on  the  policy  followed  by  the  statutory  auditor  or  audit  firm 
concerning the continuing education of statutory auditors referred to in Article 
13 of Directive 2006/43/EC;  

(i) 

information concerning the basis for the partners' remuneration in audit firms;  

(j) 

a  description  of  its  policy  concerning  the  rotation  of  key  audit  partners  and 
staff in accordance with Article 33(5);  

(k)  where appropriate, a corporate governance statement. 

The statutory auditor or audit firm may, in exceptional circumstances, decide not to 
disclose the information required in point (f) of the first subparagraph to the extent 
necessary to  mitigate an imminent and  significant  threat  to  the  personal  security of 
any  person.  The  statutory  auditor  or  audit  firm  shall  be  able  to  demonstrate  to  the 
competent authority the existence of such threat.  

3. 

The transparency report shall be signed by the statutory auditor or audit firm. 

Article 28 

Corporate governance statement 

1. 

Where an audit firm generates more than one third of its annual audit revenues from 
large public-interest entities, it shall make public a corporate governance statement. 
That statement shall be included as a specific section of the Transparency Report. 

2. 

The corporate governance statement shall at least include the following information: 

(a) 

a reference to at least one of the following: 

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(i) 

the corporate governance code to which the audit firm is subject, 

(ii) 

the corporate governance code which the audit firm may have voluntarily 
decided to apply; 

(iii)  all relevant information about the corporate governance practices applied 

beyond the requirements under national law. 

Where  the  information  referred  to  in  points  (i)  and  (ii)  is  included,  the  audit 
firm shall also indicate where the relevant texts are publicly available. Where 
the information referred to in point (iii) is included, the audit firm shall make 
its corporate governance practices publicly available; 

If the audit firm is not subject to any corporate governance code and does not 
voluntarily apply one, it shall state so.  

(b) 

the extent to which an audit firm, in accordance with national law, departs from 
a corporate governance code referred to in points (a)(i) or (ii), an explanation 
by the audit firm as to which parts of the corporate governance code it departs 
from  and  the  reasons  for  doing  so.  Where  the  audit  firm  has  decided  not  to 
apply any provisions of a corporate governance code referred to in points (a)(i) 
or (ii), it shall explain its reasons for doing so;  

(c) 

a description of the main features of the undertaking's internal control and risk 
management systems in relation to the financial reporting process;  

(d) 

the following information: 

(i) 

significant  direct  and  indirect  holdings  of  voting  rights  equal  to  or 
exceeding  5  %  of  the  total  voting  rights  in  the  audit  firm,  including 
indirect  holdings  of  voting  rights  through  pyramid  structures  and  cross 
holdings of voting rights; 

(ii) 

the identity of the holders of any special control rights and a description 
of  those  rights,  whether  such  rights  results  from  the  holding  of  any 
securities, by contract or otherwise;  

(iii)  any restrictions on voting rights, including limitations of the voting rights 
of  holders  of  a  given  percentage  or  number  of  votes,  deadlines  for 
exercising voting rights,  

(iv) 

the rules governing the appointment and replacement of board members 
and the amendment of the articles of association; 

(v) 

the powers of board members; 

(e) 

unless  the  information  is  already  fully  provided  for  in  national  laws  or 
regulations,  the  operation  of  the  meeting  of  shareholders  or  holders  of  voting 
rights  and  its  key  powers,  and  a  description  of  shareholders’  or  voting  rights 
holders' rights and how they can be exercised;  

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(f) 

the  composition  and  operation  of  the  administrative,  management  and 
supervisory bodies and their committees. 

Article 29 

Information to competent authorities 

A statutory auditor or audit firm shall provide annually to his, her or its competent authority a 
list of the audited public-interest entities by revenue generated from them. 

Article 30 

Record keeping 

Statutory  auditors  and  audit  firms  shall  keep  the  documents  and  information  referred  to  in 
Article  6(1),  Article  9(3),  Article  11(3)  and  (4),  Article  16(2)  to  (6),  Article  17(1)  and  (2), 
Article  18(1)  and  (3),  Article  19(3)  to  (6),  Articles  22,  23  and  24,  Article  25(1)  and  (2), 
Article 29, Article 32(2), (3), (5) and (6), Article 33(6) and Article 43(4) for a period of five 
years following the production of such documents or information. 

Member  States  may  require  statutory  auditors  and  audit  firms  to  keep  the  documents  and 
information referred to in the first subparagraph for a longer period in accordance with their 
rules on personal data protection and administrative and judicial proceedings.  

TITLE III 

THE APPOINTMENT OF STATUTORY AUDITORS OR AUDIT FIRMS BY PUBLIC-
INTEREST ENTITIES 

Article 31 

Audit Committee 

1. 

Each public-interest entity shall have an audit committee. The audit committee shall 
be composed of non-executive members of the administrative body and/or members 
of  the  supervisory  body  of  the  audited  entity  and/or  members  appointed  by  the 
general  meeting  of  shareholders  of  the  audited  entity  or,  for  entities  without 
shareholders, by an equivalent body.  

At least one member of the audit committee shall have competence in auditing and 
another member in accounting and/or auditing. The committee members as a whole 
shall have competence relevant to the sector in which the audited entity is operating.  

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A  majority  of  the  members  of  the  audit  committee  shall  be  independent.  The 
chairman  of  the  audit  committee  shall  be  appointed  by  its  members  and  shall  be 
independent.  

2. 

By derogation from paragraph 1 of this Article, in public-interest entities which meet 
the criteria set out in points (f) and (t) of Article 2(1) of Directive 2003/71/EC of the 
European  Parliament  and  of  the  Council36,  the  functions  assigned  to  the  audit 
committee may be performed by the administrative or supervisory body as a whole, 
provided at least that where the chairman of such a body is an executive member, he 
or she is not the chairman of the audit committee. 

3. 

By  derogation  from  paragraph  1,  the  following  public-interest  entities  may  decide 
not to have an audit committee: 

(a) 

(b) 

(c) 

(d) 

any public-interest entity which is a subsidiary undertaking within the meaning 
of  Article  1  of  Directive  83/349/EEC  if  the  entity  complies  with  the 
requirements in paragraphs 1 to 4 of that Article at group level;  

any public-interest entity which is an undertaking for collective investment in 
transferable  securities  (UCITS)  as  defined  in  Article  1(2)  of  Directive 
2009/65/EC  or  an  alternative  investment  fund  (AIF)  as  defined  in  Article 
4(1)(a) of Directive 2011/61/EU; 

any public-interest entity 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 
809/200437; 

any  credit  institution  within  the  meaning  of  Article  1(1)  of  Directive 
2006/48/EC whose shares are not admitted to trading on a regulated market of 
any Member State within the meaning of point 14 of Article 4(1) of Directive 
2004/39/EC  and  which  has,  in  a  continuous  or  repeated  manner,  issued  only 
debt securities admitted to trading in a regulated market, provided that the total 
nominal  amount  of  all  such  debt  securities  remains  below  EUR  100  000  000 
and that it has not published a prospectus under Directive 2003/71/EC.  

The public-interest entities referred to in points (b) and (c) shall 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 
audit committee. 

By derogation from paragraph 1, a public-interest entity that has a body performing 
equivalent functions to an audit committee, established and functioning according to 
provisions  in  place  in  the  Member  State  in  which  the  entity  to  be  audited  is 
registered, may decide not to have an audit committee. In such a case the entity shall 
disclose which body carries out those functions and how that body is composed. 

Without  prejudice  to  the  responsibility  of  the  members  of  the  administrative, 
management  or  supervisory  bodies,  or  of  other  members  who  are  appointed  by  the 

OJ L 345, 31.12.2003 p.64. 
OJ L 149, 30.04.2004, p. 1. 

4. 

5. 

36 
37 

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general meeting of shareholders of the audited entity, the audit committee shall, inter 
alia: 

(a)  monitor financial reporting process and submit recommendations or proposals 

to ensure its integrity; 

(b)  monitor  the  effectiveness  of  the  undertaking's  internal  control,  internal  audit 

where applicable, and risk management systems; 

(c)  monitor the statutory audit of the annual and consolidated financial statements 
and  supervise  the  completeness  and  integrity  of  the  draft  audit  reports  in 
accordance with Articles 22 to 23; 

(d) 

(e) 

(f) 

review and monitor the independence of the statutory auditors or audit firms in 
accordance with Articles 5 to 11, and in particular the provision of additional 
services to the audited entity in accordance with Article 10; 

be responsible for the procedure on the selection of statutory auditor(s) or audit 
firm(s) and recommend the statutory auditor(s) or audit firm(s) to be appointed 
in accordance with Articles 32; 

authorise,  on  a  case  by  case  basis,  the  provision  by  the  statutory  auditor  or 
audit  firm  of  the  services  referred  to  in  Article  10(3)(b)(i)  and  (ii)  of  this 
Regulation to the audited entity.  

Article 32 

1. 

2. 

Appointment of the statutory auditors or audit firms 

For  the  purposes  of  the  application  of  Article  37  of  Directive  2006/43/EC,  for  the 
appointment  of  statutory  auditors  or  audit  firms  by  public-interest  entities,  the 
conditions set out in paragraphs 2 to 5 of this Article shall apply.  

Where Article 37(2) of Directive 2006/43/EC applies, the public-interest entity shall 
inform  the  competent  authority  of  the  use  of  the  alternative  systems  or  modalities 
referred to in that Article. 

The  audit  committee  shall  submit  a  recommendation  to  the  administrative  or 
supervisory  board  of  the  audited  entity  for the  appointment  of  statutory  auditors  or 
audit firms. The audit committee shall justify the recommendation made.  

Unless it concerns the renewal of an audit engagement in accordance with the second 
subparagraph of Article 33(1), the recommendation shall contain at least two choices 
for  the  audit  engagement  and  the  audit  committee  shall  express  a  duly  justified 
preference for one of them.  

When it concerns the renewal of an audit engagement in accordance with the second 
subparagraph  of  Article  33(1),  the  audit  committee  shall,  for  the  preparation  of  its 
recommendation,  take  into  consideration  any  findings  and  conclusions  on  the 

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recommended  statutory  auditor  or  audit  firm  referred  to  in  Article  40(6)  and 
published by the competent authority pursuant to Article 44(d). 

In  its  recommendation,  the  audit  committee  shall  state  that  its  recommendation  is 
free from influence by a third party and that no contractual clause as referred to in 
paragraph 7 has been imposed upon it.  

3. 

Unless it concerns the renewal of an audit engagement in accordance with the second 
subparagraph of Article 33(1), the recommendation of the audit committee referred 
to  in  paragraph  2  of  this  Article,  shall  be  prepared  following  a  selection  procedure 
organized by the audited entity respecting the following criteria: 

(a) 

(b) 

(c) 

the audited entity shall be free to invite any statutory auditors or audit firms to 
submit  proposals  for  the  provision  of  the  statutory  audit  service  on  the 
condition  that  Article  33(2)  is  respected  and  that  at  least  one  of  the  invited 
auditors or firms is not one who received more than 15% of the total audit fees 
from  large  public-interest  entities  in  the  Member  State  concerned  in  the 
previous calendar year;  

the  audited  entity  shall  be  free  to  choose  the  method  to  contact  the  invited 
statutory auditor(s) or audit firm(s) and shall not be required to publish a call 
for  tenders  in  the  Official  Journal  of  the  European  Union  and/or  in  national 
gazettes or newspapers;  

the audited entity shall prepare tender documents to the intention of the invited 
statutory auditor(s) or audit firm(s). Those tender documents shall allow them 
to understand the business of the audited entity and the type of statutory audit 
that  is  to  be  carried  out.  The  tender  documents  shall  contain  transparent  and 
non-discriminatory selection criteria that shall be used by the audited entity to 
evaluate the proposals made by statutory auditors or audit firms;  

(d) 

the  audited  entity  shall  be  free  to  define  the  selection  procedure  and  may 
conduct  direct  negotiations  with  interested  tenderers  in  the  course  of  the 
procedure;  

(e)  where, in accordance with national law or Union law, the competent authorities 
referred  to  in  Article  35,  require  statutory  auditors  and  audit  firms  to  comply 
with  certain  quality  standards,  those  standards  shall  be  included  in  the  tender 
documents; 

(f) 

the audited entity shall evaluate the proposals made by the statutory auditors or 
audit  firms  in  accordance  with  the  selection  criteria  predefined  in  the  tender 
documents. The audited entity shall prepare a report on the conclusions of the 
selection  procedure,  which  shall  be  validated  by  the  audit  committee.  The 
audited  entity  and  the  audit  committee  shall  take  into  consideration  any 
inspection report on the applicant statutory auditor or audit firm referred to in 
Article  40(6)  and  published  by  the  competent  authority  pursuant  to  Article 
44(d); 

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(g) 

the  audited  entity  shall  be  able  to  demonstrate  to  the  competent  authority 
referred  to  in  Article  35  that  the  selection  procedure  was  conducted  in  a  fair 
manner. 

The  audit  committee  shall  be  responsible  for  the  selection  procedure  referred  to  in 
the first subparagraph.  

For  the  purposes  of  point  (a)  of  the  first  subparagraph,  the  competent  authority 
referred  to  in  Article  35(1)  shall  make  public  a  list  of  the  auditors  and  audit  firms 
concerned which shall be updated on an annual basis. The competent authority shall 
use the information provided by statutory auditors and audit firms pursuant to Article 
28 to make the relevant calculations. 

Public-interest entities which meet the criteria set out in points (f) and (t) of Article 
2(1) of Directive 2003/71/EC shall not be required to apply the selection procedure 
referred to in paragraph 4. 

The  proposal  of  the  administrative  or  supervisory  board  to  the  general  meeting  of 
shareholders  or  members  of  the  audited  entity  for  the  appointment  of  statutory 
auditors  or  audit  firms  shall  include  the  recommendation  made  by  the  audit 
committee. 

If  the  proposal  of  the  administrative  or  supervisory  board  departs  from  the 
recommendation of the audit committee, the proposal shall justify the reasons for not 
following the recommendation of the audit committee. 

In  the  case  of  a  credit  institution  or  insurance  undertaking,  the  administrative  or 
supervisory board shall submit its draft proposal to the competent authority referred 
to in Article 35(2). The competent authority referred to in Article 35(2) shall have the 
right to veto the choice proposed in the recommendation. Any such opposition shall 
be duly justified.  

The  absence  of  a  reply  by  the  competent  authority  within  the  prescribed  time-limit 
following submission of the audit committee's  recommendation shall be considered 
as constituting an implied consent to the recommendation. 

Any contractual clause entered into between a public-interest entity and a third party 
restricting  the  choice  by  the  general  meeting  of  shareholders  or  members  of  that 
entity pursuant to Article 37 of Directive 2006/43/EC to certain categories or lists of 
statutory auditors or audit firms to carry out the statutory audit of that entity shall be 
null and void.  

The public-interest entity shall inform the competent authorities referred to in Article 
35 of any attempt by a third party to impose such a contractual clause or to otherwise 
influence  the  decision  of  the  general  meeting  of  shareholders  on  the  selection  of  a 
statutory auditor or audit firm. 

4. 

5. 

6. 

7. 

8. 

Where the audited entity is exempted from the obligation to have an audit committee, 
the  audited  entity  shall  decide  which  body  or  organ  of  the  entity  shall  perform  its 
functions for the purposes of the obligations set out in this Article. 

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55 

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9. 

10. 

Member  States  may  decide  that  a  minimum  number  of  statutory  auditors  or  audit 
firms  shall  be  appointed  by  public-interest  entities  in  certain  circumstances  and 
establish  the  conditions  governing  the  relations  between  the  auditors  or  firms 
appointed. 

If a Member State establishes such requirement, it shall inform the Commission and 
ESMA thereof. 

In  order  to  facilitate  the  exercise  of  the  task  of  the  audited  entity  to  organize  a 
selection  procedure  for  the  appointment  of  a  statutory  auditor  or  audit  firm,  EBA, 
EIOPA and ESMA shall issue guidelines addressed to the public-interest entities on 
the  criteria  governing  the  selection  procedure  referred  to  in  paragraph  3,  in 
accordance  with  Article  16  of  Regulation  (EU)  No  1093/2010,  of  Regulation  (EU) 
No 1094/2010 and of Regulation (EU) No 1095/2010, respectively. 

Article 33 

Duration of the audit engagement 

1. 

The public-interest entity shall appoint a statutory auditor or audit firm for an initial 
engagement that shall not be shorter than two years. 

2. 

3. 

4. 

The public-interest entity may renew this engagement only once.  

The maximum duration of the combined two engagements shall not exceed 6 years. 

Where throughout a continuous engagement of 6 years two statutory auditors or audit 
firms  have  been  appointed,  the  maximum  duration  of  the  engagement  of  each 
statutory auditor or audit firm shall not exceed 9 years. 

After the expiry of the maximum duration of the engagement referred to in paragraph 
1, the statutory auditor or audit firm or any members of its network within the Union, 
where applicable, shall not undertake the statutory audit of the public-interest entity 
concerned until a period of at least four years has elapsed. 

By way of derogation from paragraphs 1 and 2, on an exceptional basis the public-
interest  entity  may  request  the  competent  authority  referred  to  in  Article  35(1)  to 
grant an extension to re-appoint the statutory auditor or audit firm for an additional 
engagement.  In  case  of  appointment  of  two  statutory  auditors  or  audit  firms,  this 
third  engagement  shall  not  exceed  three  years.  In  case  of  appointment  of  one 
statutory auditor or audit firm, this third engagement shall not exceed two years.  

The key audit partner(s) responsible for carrying out a statutory audit shall cease his, 
her or their participation in the statutory audit of the audited entity after a period of 
seven  years  from  the  date  of  appointment  has  elapsed.  He,  she  or  they  may 
participate in the statutory audit of the audited entity again after a period of at least 
three years. 

The  statutory  auditor  or  audit  firm  shall  establish  an  appropriate  gradual  rotation 
mechanism with regard to the most senior personnel involved in the statutory audit, 

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including  at  least  the  persons  who  are  registered  as  statutory  auditors.  The  gradual 
rotation mechanism shall be undertaken in phases on the basis of individuals rather 
than  of  a  complete  team.  It  shall  be  proportionate  in  view  of  the  scale  and  the 
dimension of the activity of the statutory auditor or audit firm.  

The  statutory  auditor  or  audit  firm  shall  be  able  to  demonstrate  to  the  competent 
authority that such mechanism is effectively applied and adapted to the scale and the 
dimension of the activity of the statutory auditor or audit firm. 

5. 

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  the  incoming 
statutory auditor or audit firm with a handover file. Such file shall include relevant 
information  concerning  the  audited  entity  as  may  reasonably  be  necessary  to 
understand  the  nature  of  the  business  and  the  internal  organisation  of  the  audited 
entity and to ensure the continuity of the statutory audit and the comparability with 
the audits carried out in previous years.  

The  former  statutory  auditor  or  audit  firm  shall  also  grant  access  to  the  incoming 
statutory  auditor  or  audit  firm  to  the  additional  reports  to  the  audit  committee 
referred  to  in  Article  23  of  previous  years  and  to  any  information  transmitted  to 
competent authorities pursuant to Articles 25 and 27. 

The  former  statutory  auditor  or  audit  firm  shall  be  able  to  demonstrate  to  the 
competent  authority  that  such  information  has  been  provided  to  the  incoming 
statutory auditor or audit firm.  

6. 

ESMA  shall  develop  draft  regulatory  technical  standards  to  specify  technical 
requirements on the content of the handover file referred to in paragraph 6. 

Power  is  delegated  to  the  Commission  to  adopt  the  regulatory  technical  standards 
referred  to  in  paragraph  6  in  accordance  with  Article  10  of  Regulation  (EU)  No 
1095/2010. 

Article 34 

Dismissal and resignation of the statutory auditors or audit firms 

1. 

2. 

Without  prejudice  to  Article  38(1)  of  Directive  2006/43/EC,  the  audited  entity  and 
the  statutory  auditor  or  audit  firm  shall  inform  the  competent  authority  concerning 
the dismissal or resignation of the statutory auditor or audit firm during the term of 
appointment and give an adequate explanation of the reasons thereof.  

Where a Member State has appointed other competent authorities for the purpose of 
Title  III  of  this  Regulation  in  accordance  with  Article  35(2),  such  competent 
authority  shall  forward  this  information  to  the  competent  authority  referred  to  in 
Article 35(1). 

The audit committee, one or more shareholders, the competent authorities referred to 
in Article 35(1) or 35(2) shall be able to bring a claim before a national court for the 
dismissal of the statutory auditor(s) or audit firm(s) where there are proper grounds. 

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Where  the  condition  laid  down  in  Article  6(2)  of  Directive  2007/36/EC  applies,  it 
shall  also  apply  to  shareholders  exercising  the  power  described  in  the  first 
subparagraph.  

In  case  that  the  audited  entity  is  exempted  from  the  obligation  to  have  an  audit 
committee,  the  audited  entity  shall  decide  which  body  or  organ  of  the  entity  shall 
perform its functions for the purposes of this paragraph. 

TITLE IV 

SURVEILLANCE OF THE ACTIVITIES OF AUDITORS AND AUDIT FIRMS CARRYING 
OUT STATUTORY AUDIT OF PUBLIC-INTEREST ENTITIES 

CHAPTER I 

COMPETENT AUTHORITIES 

Article 35 

Designation of competent authorities 

1. 

Each  Member  State  shall  designate  a  competent  authority  responsible  for  carrying 
out the tasks provided for in this Regulation and for ensuring that the provisions of 
this Regulation are applied.  

The competent authority shall be one of the following: 

(a) 

the competent authority referred to in Article 24(1) of Directive 2004/109/EC; 

(b) 

the  competent  authority  referred 
2004/109/EC; 

to 

in  Article  24(4)(h)  of  Directive 

(c) 

the competent authority referred to in Article 32 of Directive 2006/43/EC. 

2. 

By derogation from paragraph 1, Member States may decide that the responsibility 
for  ensuring  that  all  or  part  of  the  provisions  of  Title  III  of  this  Regulation  are 
applied shall be entrusted to, as appropriate, the competent authorities referred to in: 

(a)  Article 24(1) of Directive 2004/109/EC; 

(b)  Article 24(4)(h) of Directive 2004/109/EC; 

(c)  Article 40 of Directive 2006/48/EC; 

(d)  Article 30 of Directive 2009/138/EC; 

(e)  Article 20 of Directive 2007/64/EC; 

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(f)  Article 3(1) of Directive 2009/110/EC; 

(g)  Article 48 of Directive 2004/39/EC; 

(h)  Article 97 of Directive 2009/110/EC; 

(h)  Article 44 of Directive 2011/61/EU. 

3. 

4. 

5. 

6. 

Where  more  than  one  competent  authority  has  been  designated  pursuant  to 
paragraphs 1 and 2, those authorities shall be organised in such a manner that their 
tasks are clearly allocated. 

Paragraphs 1, 2 and 3 shall be without prejudice to the possibility for a Member State 
to  make  separate  legal  and  administrative  arrangements  for  overseas  European 
territories for whose external relations that Member State is responsible. 

The  competent  authorities  shall  be  adequately  staffed,  with  regard  to  capacity  and 
expertise,  and  shall  have  the  adequate  resources  in  order  to  be  able  to  fulfill  their 
tasks provided for in this Regulation. 

The  Member States shall inform  each  other,  EBA,  EIPA  and  ESMA  in  accordance 
with the relevant provisions of Regulations (EU) No 1093/2010, (EU) No 1094/2010 
and  (EU)  No  1095/2010,  and  shall  inform  the  Commission  of  the  appointment  of 
competent authorities for the purposes of this Regulation.  

ESMA shall consolidate this information and make it public. 

Article 36 

Conditions of independence 

The competent authorities and any authority to which the competent authority referred to in 
Article 35(1) has delegated tasks shall be independent of statutory auditors and audit firms.  

A person shall not be involved in the governance of those authorities if in the course of the 
three previous years he or she: 

(a) 

(b) 

(c) 

(d) 

has carried out statutory audits of public-interest entities; 

held voting rights in an audit firm; 

was member of the administrative, management or supervisory body of an audit firm; 

was an employee or otherwise associated with an audit firm. 

The funding of those authorities shall be secure and free from any possible undue influence by 
statutory auditors and audit firms. 

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Article 37 

Professional secrecy 

The  obligation  of  professional  secrecy  shall  apply  to  all  persons  who  are  or  have  been 
employed  by  competent  authorities  or  by  any  authority  to  whom  the  competent  authority 
referred  to  in  Article  35(1)  has  delegated  tasks,  including  experts  contracted  by  such 
authorities.  Information  covered  by  professional  secrecy  may  not  be  disclosed  to  any  other 
person  or  authority  except  by  virtue  of  the  obligations  of  this  Regulation  or  of  the  laws, 
regulations or administrative procedures of a Member State. 

Article 38 

Powers of competent authorities 

1. 

2. 

Without  prejudice  to  Articles  40  and  41,  in  carrying  out  their  tasks  under  this 
Regulation,  the  competent  authorities  or  any  other  public  authorities  of  a  Member 
State may not interfere with the content of audit reports. 

In order to carry out their tasks under this Regulation, the competent authorities shall, 
in  conformity  with  national  law,  have  all  the  supervisory  and  investigatory  powers 
that are necessary for the exercise of their functions. They shall exercise their powers 
in any of the following ways: 

(a) 

directly; 

(b) 

in collaboration with other authorities;  

(c) 

under  their  responsibility  by  delegation  to  entities  to  which  tasks  have  been 
delegated according to Article 35(1);  

(d)  by application to the competent judicial authorities. 

3. 

In order to carry out their tasks under this Regulation, the competent authorities shall, 
in conformity with national law, have the power in their supervisory capacity to:  

(a) 

access any document in any form relevant to the carrying out of their tasks and 
to receive or take a copy thereof; 

(b)  demand information from any person and if necessary to summon and question 

a person with a view to obtaining information; 

(c) 

carry out on-site inspections with or without announcement;  

(d) 

require  records  of  telephone  and  data  traffic  processed  by  statutory  auditors 
and audit firms; 

(e) 

refer matters for criminal prosecution; 

(f) 

request experts to carry out verifications or investigations; 

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4. 

5. 

(g) 

take the administrative measures and sanctions referred to in Article 61. 

The  competent authorities may use the  powers referred to in the first subparagraph 
only  in  relation  to  statutory  auditors  and  audit  firms  carrying  out  statutory  audit  of 
public-interest  entities,  persons  involved  in  the  activities  of  statutory  auditors  and 
audit  firms  carrying  out  statutory  audit  of  public-interest  entities,  audited  entities, 
their affiliates  and related third parties, third  parties to whom the  statutory auditors 
and audit firms carrying out statutory audit of public-interest entities have outsourced 
certain functions or activities, and persons otherwise related or connected to statutory 
auditors and audit firms carrying out statutory audit of public-interest entities. 

A request for records of telephone or data traffic referred to in point (d) of paragraph 
3 shall require authorisation from a judicial authority. 

Where a cooperative within the meaning of Article 2(14) of Directive 2006/43/EC or 
a  similar  entity  as  referred  to  in  Article  45  of  Directive  86/635/EEC  is  required  or 
permitted under national law to be a member of a non-profit-making auditing entity, 
the  competent  authority  referred  to  in  Article  35(1)  may  decide  that  certain 
provisions set out under this Regulation shall not apply to the statutory audit of such 
entity  provided  that  the  principles  of  independence  laid  down  in  Chapter  I  of  this 
Regulation are complied with by the statutory auditor carrying out the statutory audit 
and  by  persons  who  may  be  in  a  position  to  influence  the  statutory  audit.  For  the 
purpose  of  deciding  upon  such  exceptional  situations  of  non-application  of  certain 
provisions  of  this  Regulation,  the  competent  authority  referred  to  in  Article  35(1) 
shall consult the supervisory authority of the cooperative or the similar entity where 
appropriate. 

The  competent  authority  referred  to  in  Article  35(1)  shall  inform  ESMA  of  such 
exceptional situations of non-application of certain provisions of this Regulation. It 
shall communicate ESMA the list of provisions of this Regulation that have not been 
applied to the statutory audit of the entities referred to in paragraph 5 and the reasons 
that justified the exemption granted for such non-application. 

6. 

The  processing  of  personal  data  processed  in  the  exercise  of  the  supervisory  and 
investigative powers pursuant to this Article shall be carried out in accordance with 
Directive 95/46/EC. 

Article 39 

Cooperation with other competent authorities at national level 

The  competent  authority  designated  pursuant  to  Article  35(1)  and,  where  appropriate,  any 
authority  to  whom  that  competent  authority  has  delegated  tasks  shall  cooperate  at  national 
level with: 

(a) 

(b) 

EN 

the  competent  authorities  responsible  for  the  approval  and  registration  of  statutory 
auditors and audit firms pursuant to Directive 2006/43/EC; 

the  authorities  referred  to  in  Article  35(2),  whether  they  have  been  designated 
competent authorities for the purposes of this Regulation or not; 

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(c) 

the  financial  intelligence  units  and  the  competent  authorities  referred  to  in  Articles 
21 and 37 of Directive 2005/60/EC. 

CHAPTER II 

QUALITY ASSURANCE, INVESTIGATION, MARKET MONITORING, CONTINGENCY 
PLANNING AND TRANSPARENCY OF COMPETENT AUTHORITIES TASKS  

Article 40 

Quality assurance  

1. 

For the purposes of this Article: 

(a) 

(b) 

(c) 

"inspections"  means  quality  assurance  reviews  of  statutory  auditors  and  audit 
firms,  which  are  led  by  an  inspector  and  which  do  not  represent  an 
investigation within the meaning of Article 41;  

"inspector" means a reviewer who meets the requirements set out in point (a) of 
the  second  subparagraph  of  paragraph  3  of  this  Article  and  is  employed  by  a 
competent authority;  

"expert"  means  a  natural  person,  who  has  specific  expertise  in  financial 
markets,  financial  reporting,  auditing  or  other  fields  relevant  for  inspections, 
including practising statutory auditors. 

2. 

The  competent  authorities  referred  to  in  Article  35(1)  shall  establish  an  effective 
system of audit quality assurance. 

The  competent  authority  shall  carry  out  quality  assurance  reviews  of  statutory 
auditors  and  audit  firms  that  carry  out  statutory  audits  of  public-interest  entities  at 
least every three years.  

3. 

The  competent  authority  shall  be  responsible  for  the  quality  assurance  system  and 
shall  organise  it  in  a  manner  that  is  independent  of  the  reviewed  statutory  auditors 
and audit firms. 

The competent authority shall have the following responsibilities which may not be 
delegated  to  any  association  or  body  affiliated  with  the  accounting  or  audit 
profession: 

(a) 

approval and amendment of the inspection methodologies, including inspection 
and  follow-up  manuals,  reporting  methodologies  and  periodic  inspection 
programmes; 

(b) 

approval and amendment of inspection reports and follow up reports; 

(c) 

approval and assignment of inspectors for each inspection. 

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The  competent  authority  shall  allocate  adequate  resources  to  the  quality  assurance 
system. 

4. 

The competent authority shall ensure that appropriate policies and procedures related 
to  the  independence  and  objectivity  of  the  staff,  including  inspectors,  and  the 
management of the inspection system are put in place.  

The  competent  authority  shall  comply  with  the  following  criteria  when  appointing 
inspectors: 

(a) 

(b) 

(c) 

inspectors  shall  have  appropriate  professional  education  and  relevant 
experience  in  statutory  audit  and  financial  reporting  combined  with  specific 
training on quality assurance reviews; 

a  person  who  is  a  practicing  statutory  auditor  or  is  employed  or  otherwise 
associated with a statutory auditor or an audit firm shall not be allowed to act 
as an inspector; 

a  person  shall  not  be  allowed  to  act  as  an  inspector  in  an  inspection  of  the 
statutory auditor or audit firm until at least two years have elapsed since that 
person ceased to be a partner or employee of that auditor or in that audit firm or 
to be otherwise associated therewith; 

(d) 

inspectors shall declare that there are no conflicts of interest between them and 
the statutory auditor and audit firm to be inspected. 

The  competent  authority  may  contract  experts  for  carrying  out  specific  inspections 
when  the  number  of  inspectors  within  the  authority  is  insufficient.  The  competent 
authority  may  also  be  assisted  by  experts  when  this  is  essential  for  the  proper 
conduct of an inspection. In such instances, the competent authorities and the experts 
shall comply  with the  requirements of this paragraph. Experts shall be independent 
from professional associations and bodies. 

5. 

The scope of inspections shall cover: 

(a) 

(b) 

(c) 

an assessment of the design of the internal quality control system of the audit 
firm or of the statutory auditor;  

adequate compliance testing of procedures and a review of audit files of public 
interest  entities  in  order  to  verify  the  effectiveness  of  the  internal  quality 
control system; 

in the light of the inspection findings under points (a) and (b) of this paragraph, 
an  assessment  of  the  contents  of  the  most  recent  annual  transparency  report 
published by a statutory auditor or an audit firm in accordance with Article 27. 

At least the following internal control policies and procedures of the statutory auditor 
or the audit firm shall be reviewed: 

(a) 

compliance by the statutory auditor or the audit firm with applicable auditing 
and  quality  control  standards,  and  ethical  and  independence  requirements, 
including those related to Chapter IV of Directive 2006/43/EC and Articles 5 to 

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10 of this Regulation, as well as relevant laws, regulations and administrative 
provisions of the Member State concerned; 

(b) 

the  quantity  and  quality  of  resources  used,  including  compliance  with 
continuing  education  requirements  as  set  out  in  Article  13  of  Directive 
2006/43/EC; 

(c) 

compliance with the requirements set out in Article 9 on the audit fees charged. 

For the purposes of testing compliance, at least a significant part of audit files shall 
be selected on the basis of an analysis of the risk of an inadequate carrying out of the 
statutory audit. 

The competent authorities shall also periodically review the methodologies used by 
statutory auditors and audit firms to carry out statutory audit. 

Inspections  shall  be  appropriate  and  proportionate  in  view  of  the  scale  and 
complexity of the activities of the reviewed audit firm or statutory auditor. 

6. 

Inspections  findings  and  conclusions  on  which  recommendations  are  based, 
including  the  findings  and  conclusions  related  to  a  transparency  report,  shall  be 
communicated  to  and  discussed  with  the  inspected  statutory  auditor  or  audit  firm 
before an inspection report is finalised.  

Recommendations  of  inspections  shall  be  followed  up  by  the  inspected  statutory 
auditor or audit firm within a reasonable period set by the competent authority. Such 
period  shall  not  exceed  12  months  in  the  case  of  recommendations  on  the  internal 
quality control system of the audit firm.  

7. 

The  inspection  shall  be  the  subject  of  a  report  which  shall  contain  the  main 
conclusions of the quality assurance review. 

Article 41 

Investigation 

The  competent  authorities  referred  to  in  Article  35(1)  shall  establish  effective  systems  of 
investigation  with  a  view  to  detecting,  correcting  and  preventing  inadequate  carrying  out  of 
the statutory audit of public-interest entities. 

Where  a  competent  authority  contracts  experts  for  carrying  out  specific  assignments,  the 
authority  shall  ensure  that  there  are  no  conflicts  of  interest  between  these  experts  and  the 
statutory auditor or audit firm under investigation.  

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Article 42 

Market monitoring 

1. 

The  competent  authorities  referred  to  in  Article  35(1)  shall  regularly  monitor  the 
developments  in  the  market  for  providing  statutory  audit  services  to  public-interest 
entities. 

The competent authorities shall in particular assess the following: 

(a) 

the  risks  arising  from  high  concentration,  including  the  demise  of  audit  firms 
with significant market share, the disruption in the provision of statutory audit 
services whether in a specific sector or across sectors, the further accumulation 
of  risk  in  the  market  and  the  impact  on  the  overall  stability  of  the  financial 
sector; 

(b) 

the need to adopt measures to mitigate those risks.  

2. 

By X X 20XX [2 years after the entry into force of the Regulation], and at least on a 
two-year  basis  thereafter,  each  competent  authority  shall  draw  up  a  report  on  this 
issue and submit it to ESMA, EBA and EIOPA. 

ESMA,  EBA  and  EIOPA  shall  use  those  reports  to  draw  up  a  joint  report  on  the 
situation  at  Union  level.  The  report  shall  be  submitted  to  the  Commission,  the 
European Central Bank and the European Systemic Risk Board. 

Article 43 

Contingency planning 

1. 

2. 

Without prejudice to Article 52, competent authorities designated pursuant to Article 
35(1) shall require at least the six largest audit firms in terms of statutory audits of 
large  public-interest  entities  in  each  Member  State  to  establish  a  contingency  plan 
addressing a possible event threatening the continuity of operations of the concerned 
firm. 

The competent authority shall make public a list of the firms concerned by the first 
subparagraph  and  update  it  annually.  The  competent  authority  shall  use  the 
information provided by statutory auditors and audit firms pursuant to Article 28 to 
calculate which the largest six audit firms are. 

The contingency plans shall identify measures to avoid disruption in the provision of 
statutory  audit  services  to  public-interest  entities,  prevent  the  contagion  effect  to 
other audit firms, belonging to the same network or not, as a result of either liability 
or reputation risks and prevent further structural accumulation of risk in the market. 

The contingency plans shall indicate: 

(a) 

the level of liability that each partner is subjected to within the audit firm; 

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3. 

4. 

(b) 

the extent to which legal liability can spread to other audit firms belonging to 
the same network, both at national, Union and international level. 

Without  prejudice to the applicable  national insolvency laws, competent authorities 
may specifically require  that  the contingency plans identify measures to prepare an 
orderly failure of the firm concerned.  

The  audit  firms  concerned  shall  submit  their  respective  contingency  plans  to  the 
competent  authorities  within  a  timeframe  set  by  the  competent  authorities.  The 
contingency plans shall be updated as appropriate.  

The  competent  authorities  shall  not  formally  approve  or  endorse  the  contingency 
plans.  They  may  however  provide  an  opinion  on  the  contingency  plans  or  on  draft 
contingency plans, should the audit firms consult them in advance. 

Article 44 

Transparency of Competent Authorities 

Competent authorities shall be transparent and shall at least publish: 

(a) 

(b) 

(c) 

annual activity reports regarding the tasks provided in this Regulation; 

annual work programmes regarding the tasks provided in this Regulation; 

a  report  on  the  overall  results  of  the  quality  assurance  system  on  an  annual  basis. 
This report shall  include information on recommendations issued,  follow-up  on the 
recommendations,  supervisory  measures  taken  and  penalties  imposed.  It  shall  also 
include quantitative information and other key performance information on financial 
resources and staffing, and the efficiency and effectiveness of the quality assurance 
system; 

(d) 

the inspections findings and conclusions referred to in Article 40(6). 

CHAPTER III 

COOPERATION BETWEEN COMPETENT AUTHORITIES AND RELATIONS WITH THE 
EUROPEAN SUPERVISORY AUTHORITIES 

Article 45 

Obligation to cooperate  

The competent authorities of  the Member States shall cooperate  with each other where  it is 
necessary  for  the  purposes  of  this  Regulation,  including  in  cases  where  the  conduct  under 
investigation does not constitute an infringement of any legislative or regulatory provision in 
force in the Member State concerned. 

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Article 46 

ESMA 

1. 

The  cooperation  between  competent  authorities  shall  be  organised  within  the 
framework of ESMA.  

ESMA  shall  create  a  permanent  internal  committee  pursuant  to  Article  41  of 
Regulation (EU) No 1095/2010 for this purpose. Such internal committee shall be at 
least  composed  of  the  competent  authorities  referred  to  in  Article  35(1)  of  this 
Regulation.  The  competent  authorities  referred  to  in  Article  32  of  Directive 
2006/43/EC  shall  be  invited  to  attend  the  meetings  of  such  internal  committee 
concerning matters related to approval and registration of statutory auditors and audit 
firms and relations with third countries in so far as relevant to the statutory audit of 
public-interest entities. 

ESMA  shall  cooperate  with  EBA  and  EIOPA  within  the  framework  of  the  Joint 
Committee  of  the  European  Supervisory  Authorities  established  in  Article  54  of 
Regulation (EU) No 1095/2010.  

ESMA  shall  take  over,  as  appropriate,  all  existing  and  ongoing  tasks  from  the 
European  Group  of  Audit  Oversight  Bodies  (EGAOB)  created  by  Decision 
2005/909/EC. 

2. 

3. 

ESMA shall provide advice to the competent authorities in the cases provided for in 
this  Regulation.  The  Competent  authorities  shall  consider  that  advice  before  taking 
any final decision under this Regulation.  

In order to facilitate the exercise of the tasks provided for in this Regulation, ESMA 
shall  issue  guidelines,  in  accordance  with  Article  16  of  Regulation  (EU)  No 
1095/2010, as appropriate, on: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

common standards on the content and presentation of the report referred to in 
Article 22; 

common standards on the content and presentation of the report referred to in 
Article 23; 

common standards on the oversight activity of the audit committee referred to 
in Article 24; 

common  standards  and  best  practices  on  the  content  and  presentation  of  the 
report  referred  to  in  Article  27,  including  the  statement  referred  to  in  Article 
28; 

common  standards  and  best  practices  on  the  gradual  rotation  mechanism 
referred to in Article 33; 

common  standards  and  best  practices  regarding  the  dismissal  of  auditors,  in 
particular on the existence of proper grounds for it, as referred to in Article 34; 

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(g) 

(h) 

enforcement practices and activities to be conducted by competent authorities 
under this Regulation; 

common standards and best practices for conducting quality assurance reviews 
provided for in Article 40, taking into consideration, in particular:  

(i) 

the  different  scale  and  dimension  of  activity  of  statutory  auditors  and 
audit firms and policies;  

(ii) 

the  commonality  of  quality  standards,  policies  and  procedures  to  which 
members of networks of statutory auditors and audit firms adhere; 

(i) 

common  standards  and  best  practices  for  conducting  investigations  provided 
for in Article 41; 

(j) 

procedures for the exchange of information provided for in Article 48; 

(k)  procedures  and  modalities  for  cooperation  with  regard  to  quality  assurance 

reviews provided for in Article 49; 

(l) 

procedures and modalities for joint investigations and inspections provided for 
in Article 51; 

(m) 

the operational functioning of the colleges provided for in Article 53, including 
on the modalities for determining the membership to the colleges, the selection 
of  facilitators,  the  written  arrangements  for  the  operation  of  the  colleges  and 
the coordination arrangements between colleges. 

ESMA shall consult EBA and EIOPA before issuing the guidelines referred to in the 
first subparagraph. 

4. 

By X X 20XX [four years after the entry into force of the Regulation], and at least at 
on a two-year basis thereafter, ESMA shall prepare a report on the application of this 
Regulation. 

ESMA shall consult EBA and EIOPA before making public its report. 

In a report to be prepared by X X 20XX [two years after the entry into force of the 
Regulation], ESMA shall undertake an evaluation of the structure of the audit market 
. 

For the purpose of this report, ESMA shall examine the influence of Member States’  
civil liability systems for statutory auditors on the audit market structure. 

In a report to be prepared by ESMA by X X 20XX [four years after the entry into 
force of the Regulation], shall examine whether the competent authorities referred to 
in Article 35(1) are sufficiently empowered and have adequate resources to carry out 
their tasks. 

In  a  report  to  be  prepared  by  ESMA  by  X  X  20XX  [six  years  after  the  end  of  the 
transitional period], shall examine the following issues: 

(a) 

the changes in the audit market structure;  

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(b) 

(c) 

the changes in the patterns of cross-border activity, including as a result of the 
changes  introduced  to  Chapter  II  of  Directive  2006/43/EC  by  Directive 
xxxx/xx/EU; 

an interim assessment on the improvement of audit quality and the impact of 
this Regulation on small and medium-sized enterprises which are public-
interest entities. 

In a report, to be prepared by X X 20XX [twelve years after the entry into force of 
the  Regulation],  ESMA  shall  undertake  an  evaluation  of  the  impact  of  this 
Regulation.  

Before  X  X  20XX  [three  years  after  the  entry  into  force  of  the  Regulation]  the 
Commission  shall  present  a  report,  on  the  basis  of  the  ESMA  reports  and  other 
appropriate  evidence,  on  the  impact  of  the  national  liability  rules  for  statutory 
auditors  on  the  audit  market  structure.  In  the  light  of  that  report,  the  Commission 
shall take the steps it considers appropriate as a result of its findings. 

Article 47 

Home Member State principle 

Member  States  shall  respect  the  principle  of  Home  Member  State  regulation  and 
oversight  by  the  Member  State  in  which  the  statutory  auditor  or  audit  firm  is 
approved and the audited entity has its registered office.  

In  the  case  of  a  statutory  audit  of  consolidated  financial  statements,  the  Member 
State  requiring  the  statutory  audit  of  the  consolidated  financial  statements  may  not 
impose  additional  requirements  in  relation  to  the  statutory  audit  concerning 
registration,  quality  assurance  review,  auditing  standards,  professional  ethics  and 
independence on a statutory auditor or audit firm carrying out a statutory audit of a 
subsidiary established in another Member State. 

In the case of a undertaking whose securities are traded on a regulated market in a 
Member State other than that in which that undertaking has its registered office, the 
Member  State  in  which  the  securities  are  traded  may  not  impose  any  additional 
requirements  in  relation  to  the  statutory  audit  concerning  registration,  quality 
assurance  review,  auditing  standards,  professional  ethics  and  independence  on  a 
statutory  auditor  or  audit  firm  carrying  out  the  statutory  audit  of  the  annual  or 
consolidated financial statements of that undertaking. 

5. 

1. 

2. 

3. 

Article 48 

Exchange of information 

1. 

The competent authorities referred to in Article 35 shall, without undue delay, supply 
each  other  and  the  relevant  European  Supervisory  Authorities  with  the  information 
required for the purposes of carrying out their tasks under this Regulation.  

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2. 

When  receiving  a  request  for  information  from  another  competent  authority  or  a 
European  Supervisory  Authority,  the  competent  authority  receiving  such  request 
shall,  without  undue  delay,  take  the  necessary  measures  to  gather  the  required 
information. If the requested competent authority is not able to supply the required 
information without undue delay, it shall notify the requesting competent authority of 
the reasons thereof. 

3. 

The competent authorities may refuse to act on a request for information under any 
of the following circumstances: 

(a) 

(b) 

(c) 

supplying  information  might  adversely  affect  the  sovereignty,  security  or 
public order of the requested Member States or breach national securities rules; 

judicial proceedings have already been initiated in respect of the same actions 
and against the same statutory auditors or audit firms before the authorities of 
the requested Member State; 

a final judgment has already been passed in respect of the same actions and on 
the  same  statutory  auditors  or  audit  firms  by  the  competent  authorities  of  the 
requested Member State. 

Without  prejudice  to  the  obligations  to  which  they  are  subject  in  judicial 
proceedings,  competent  authorities  or  the  European  Supervisory  Authorities  which 
receive  information  pursuant  to  paragraph  1  may  use  that  information  only  for  the 
exercise  of  their  tasks  within  the  scope  of  this  Regulation  and  in  the  context  of 
administrative  or  judicial  proceedings  specifically  related  to  the  exercise  of  those 
tasks.  

The competent authorities may transmit to the competent authorities responsible for 
supervising  public-interest  entities,  central  banks,  the  European  System  of  Central 
Banks and the European Central Bank, in their capacity as monetary authorities, and 
the  European  Systemic  Risk  Board  confidential  information  intended  for  the 
performance  of  their  tasks.  Such  authorities  or  bodies  shall  not  be  prevented  from 
communicating  to  the  competent  authorities  information  that  the  competent 
authorities may need in order to carry out their duties under this Regulation. 

Article 49 

Cooperation with regard to quality assurance reviews 

Competent  authorities  shall  take  measures  to  ensure  effective  cooperation  at  Union 
level in respect of quality assurance reviews. 

The  competent  authority  of  one  Member  State  may  request  the  assistance  of  the 
competent  authority  of  another  Member  State  with  regard  to  the  quality  assurance 
reviews  of  statutory  auditors  or  audit  firms  belonging  to  a  network  exercicing 
significant activities in that Member State. 

4. 

1. 

2. 

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The competent authority making any such request shall inform ESMA thereof. In the 
event  of  an  investigation  or  inspection  with  cross-border  effect,  the  competent 
authorities may request ESMA to coordinate the investigation or inspection. 

3. 

Where  a  competent  authority  receives  a  request  from  a  competent  authority  of 
another  Member  State  to  participate  in  the  quality  assurance  review  of  a  statutory 
auditors or audit firm belonging to a network exercicing significant activities in that 
Member State, it shall allow the requesting competent authority to participate in such 
quality assurance review. 

The  requesting  competent  authority  shall  not  have  the  right  to  access  information 
which  might  adversely  affect  the  sovereignty,  security  or  public  order  of  the 
requested Member State or breach national securities rules. 

Article 50 

European Quality Certificate 

1. 

ESMA shall establish a European quality certificate for statutory auditors and audit 
firms carrying out statutory audits of public-interest entities.  

The European quality certificate shall meet the following conditions: 

(a) 

the European quality certificate shall be delivered by ESMA and shall be valid 
across the Union; 

(b)  Union  auditors  and  audit  firms  meeting  the  relevant  requirements  shall  be 

entitled to apply for the European quality certificate; 

(c)  ESMA  shall  publish  the  requirements  for  obtaining  the  European  quality 
certificate.  Such  requirements  shall  be  based  on  audit  quality  and  the 
experience  of  the  quality  assurance  systems  referred  to  in  Article  30  of 
Directive 2006/43/EC and Article 40 of this Regulation; 

(d)  ESMA shall charge fees to the applicant statutory auditors and audit firms for 
delivering the European quality certificate in accordance with the delegated act 
referred to in paragraph 4 of this Article. Those fees shall fully cover ESMA's 
necessary  expenditure  relating  to  the  delivering  of  the  certificate  and  the 
reimboursement of any costs that the competent authorities may incur carrying 
out work pursuant to this Article; 

(e)  ESMA shall state the reasons for delivering the certificate or for rejecting the 

application;  

(f) 

a  statutory  auditor  or  audit  firm  shall  comply  at  all  times  with  the  conditions 
for the initial granting of the certificate; 

(g)  ESMA shall be entitled to re-examine any certificate granted to  any statutory 
auditor  or  audit  firm,  either  at  the  request  of  a  competent  authority  or  on  its 

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own initiative. The results of the quality assurance reviews shall be taken into 
account; 

(h)  ESMA shall be entitled to withdraw the European quality certificate where the 
statutory auditor or audit firm does not longer meet the conditions for obtaining 
it;  

(i)  ESMA shall keep a registry of statutory auditors and firms which obtained the 

certificate; 

(j) 

the European quality certificate shall have a voluntary character and shall not 
be  a  condition  for  statutory  auditors  or  audit  firms  to  be  able  to  carry  out 
statutory audits of public-interest entities, to be approved in another Member in 
accordance  with  Article  14  of  Directive  2006/43/EC  or  to  be  recognised  in 
another Member in accordance with Article 3a of that Directive.  

2. 

ESMA shall develop draft regulatory technical standards to specify the procedure for 
obtaining  a  European  quality  certificate  for  statutory  auditors  and  audit  firms 
carrying  out  statutory  audits  of  public-interest  entities.  Those  technical  standards 
shall comply with the following principles: 

(a) 

applications shall be submitted to ESMA in either a language accepted in the 
Member  State  where  the  statutory  auditor  or  audit  firm  is  approved  or  in  a 
language customary in the sphere of international finance. 

Where  a group of  audit  firms applies for the European quality certificate,  the 
members  of  the  group  may  mandate  one  of  their  members  to  submit  all  the 
applications on behalf of the group; 

(b)  ESMA shall transmit a copy of the application to the competent authorities of 

the Member States concerned by the application;  

(c) 

the  competent  authorities  of  the  Member  States  concerned  by  the  application 
shall  jointly  examine  the  application  for  the  certificate  within  a  college  of 
competent  authorities  referred  to  in  Article  53.  Such  examination  shall  cover 
whether  the  application  is  complete  and  whether  it  meets  the  conditions  for 
delivering the certificate. Information obtained in quality assurance reviews on 
a particular applicant shall be used in this examination; 

(d) 

the  competent  authorities  of  the  Member  States  concerned  by  the  application 
shall provide an advice to ESMA as to whether the applicant shall be entitled to 
obtain the certificate; 

(e)  ESMA shall take a decision on the application; 

(f)  ESMA shall establish the detailed procedural steps and time limits;  

For the purposes of point (ii), those Member States shall be at least:  

– 

if the applicant is a statutory auditor, the Member State(s) where the statutory 
auditor is approved in accordance with Article 3 of Directive 2006/43/EC and, 
if  applicable,  the  Member  State(s)  where  the  statutory  auditor  is  approved  in 

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accordance with Article 14 of that Directive and/or the Member State(s) where 
statutory auditor is undertaking an adaptation period pursuant to Article 14 of 
Directive 2006/43/EC;  

– 

if  the  applicant  is  an  audit  firm,  the  Member  State(s)  where  the  audit  firm  is 
approved  in  accordance  with  Article  3  of  Directive  2006/43/EC  and,  if 
applicable,  the  Member  State(s)  where  the  audit  firm  is  recognised  in 
accordance with Article 3a of that Directive and/or the Member State(s) where 
the audit firm has controlled firms, affiliate firms or a parent firm. 

3. 

ESMA shall submit the draft regulatory technical standards referred to in paragraph 2 
to the Commission by [ 3 years after the entry into force of this Regulation]. 

Powers are delegated to the Commission to adopt the regulatory technical standards 
referred  to  in  paragraph  2  in  accordance  with  Article  10  of  Regulation  (EU)  No 
1095/2010. 

4. 

The  Commission  shall  be  empowered  to  adopt  delegated  acts  in  accordance  with 
Article  68  for  the  purpose  of  determining  the  fees  referred  to  in  point  (d)  of 
paragraph 1.  

The delegated acts shall determine in particular the types of fees and the matters for 
which fees are due, the amount of the fees, they way in which they are to be paid and 
the way in which ESMA is to reimburse competent authorities in respect of any costs 
that they may incur carrying out work pursuant to this Article.  

The  amount  of  a  fee  charged  to  a  statutory  auditor  or  an  audit  firm  shall  cover  all 
administrative costs.  

Article 51 

Cooperation with regard to investigations or on-site inspections 

1. 

Where  a  competent  authority  concludes  that  activities  contrary  to  the  provisions  of 
this  Regulation  are  being  carried  out  or  have  been  carried  out  on  the  territory  of 
another  Member  State,  it  shall  notify  the  competent  authority  of  the  other  Member 
State of that conclusion in as specific a manner as possible. The competent authority 
of the other Member State shall take appropriate action. It shall inform the notifying 
competent authority of the outcome and, to the extent possible, of significant interim 
developments.  

2. 

A  competent  authority  of  one  Member  State  may  request  that  an  investigation  is 
carried out by the competent of another Member State on the latter's territory. 

It  may  also  request  that  some  of  its  own  personnel  be  allowed  to  accompany  the 
personnel  of  the  competent  authority  of  that  Member  State  in  the  course  of  the 
investigation, including with regard to on-site inspections. 

The competent authority making any such request shall inform ESMA of any request 
referred to in the first and second subparagraphs. 

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The investigation or inspection shall be subject throughout to the overall control of 
the  Member  State  on  whose  territory  it  is  conducted.  However,  in  the  event  of  an 
investigation  or  inspection  with  cross-border  effect,  the  competent  authorities  may 
request ESMA to coordinate the investigation or inspection. 

3. 

The requested competent authority may refuse to act on a request for an investigation 
to  be  carried  out  as  provided  for  in  the  first  subparagraph  of  paragraph  2,  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 of paragraph 2, in 
the following cases: 

(a) 

(b) 

such  an  investigation  or  on-site  inspection  might  adversely  affect  the 
sovereignty, security or public order of the requested Member State;  

judicial proceedings have already been initiated in respect of the same actions 
and  against  the  same  persons  before  the  authorities  of  the  requested  Member 
State;  

(c) 

a final judgment has already been passed in respect of the same actions on such 
persons by the competent authorities of the requested Member State. 

Article 52 

Cooperation with regard to contingency planning 

Where  the  audit  firms  concerned  by  the  requirement  in  Article  43  belong  to  networks  of  at 
least  Union  dimension,  competent  authorities  shall  cooperate  within  ESMA  with  a  view  to 
ensuring that the different national requirements take account of the network dimension. 

The competent authorities shall make available to ESMA and the other competent authorities 
the contingency plans received pursuant to Article 43(4).  

ESMA  shall  not  formally  approve  or  endorse  the  contingency  plans,  but  may  provide  an 
opinion on them.  

Article 53 

Colleges of competent authorities 

1. 

2. 

Colleges  of  competent  authorities  may  be  established  in  order  to  facilitate  the 
exercise of the tasks referred to in Articles 40, 41, 50, 51, 52 and 61 with regard to 
specific statutory auditors, audit firms or their networks.  

With  regard  to  specific  statutory  auditors  or  audit  firms,  colleges  of  competent 
authorities  shall  be  established  by  the  competent  authority  of  the  home  Member 
State.  

The college shall comprise the competent authority of the home Member State and 
any other competent authority of other Member States provided that: 

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3. 

4. 

5. 

6. 

7. 

(a) 

the  statutory  auditor  or  audit  firm  is  providing  statutory  audit  services  to 
public-interest entities within its jurisdiction; or 

(b) 

a branch which is a part of the audit firm is established within its jurisdiction.  

The competent authority of the home Member State shall act as facilitator. 

With  regard  to  specific  networks,  colleges  of  competent  authorities  shall  be 
established by ESMA upon request of one or more competent authorities. 

The college shall comprise the competent authorities of the Member States where the 
network exercises significant activities.  

Within 15 working days of the establishment of the college of competent authorities 
with  regard  to  a  specific  network,  its  members  shall  select  a  facilitator.  In  the 
absence of agreement, ESMA shall appoint a facilitator. 

Members of the college shall review the selection of the facilitator at least every five 
years to ensure the selected facilitator remains the most appropriate. 

The facilitator shall chair the meetings of the  college, coordinate the actions  of the 
college and ensure efficient exchange of information among members of the college. 

The facilitator shall, within 10 working days of his or her selection, establish written 
coordination  arrangements  within  the  framework  of  the  college  regarding  the 
following matters: 

(a) 

information to be exchanged between competent authorities; 

(b) 

cases in which the competent authorities must consult each other;  

(c) 

cases  in  which  the  competent  authorities  may  delegate  supervisory  tasks  in 
accordance with Article 54. 

In the absence of agreement concerning the written coordination arrangements under 
paragraph  6,  any  member  of  the  college  may  refer  the  matter  to  ESMA.  The 
facilitator shall give due consideration to any advice provided by ESMA concerning 
the  written  coordination  arrangements  before  agreeing  their  final  text.  The  written 
coordination  arrangements  shall  be  set  out  in  a  single  document  containing  full 
reasons for any significant deviation from the advice of ESMA. The facilitator shall 
transmit the written coordination arrangements to the members of the college and to 
ESMA. 

Article 54 

Delegation of tasks 

The  competent  authority  of  the  home  Member  State  may  delegate  any  of  its  tasks  to  the 
competent  authority  of  another  Member  State  subject  to  the  agreement  of  that  authority. 
Delegation of tasks shall not affect the responsibility of the delegating competent authority. 

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1. 

2. 

3. 

1. 

2. 

Article 55 

Confidentiality and professional secrecy in relation to ESMA 

The  obligation  of  professional  secrecy  shall  apply  to  all  persons  who  work  or  who 
have worked for ESMA, or for any other person to whom ESMA has delegated tasks, 
including experts contracted by ESMA. Information covered by professional secrecy 
shall not be disclosed to another person or authority except where such disclosure is 
necessary for legal proceedings. 

Paragraph 1 of this Article and Article 37 shall not prevent ESMA and the competent 
authorities  from  exchanging  confidential  information.  Information  thus  exchanged 
shall  be  covered  by  the  obligation  of  professional  secrecy,  to  which  persons 
employed or formerly employed by competent authorities are subject.  

All the information exchanged under this Regulation between ESMA, the competent 
authorities and other authorities and bodies shall be considered confidential, except 
where ESMA or the competent authority or other authority or body concerned states 
at the time of communication that such information may be disclosed or where such 
disclosure is necessary for legal proceedings. 

Article 56 

Protection of personal data 

Member  States  shall  apply  Directive  95/46/EC  to  the  processing  of  personal  data 
carried out in the Member States pursuant to this Regulation. 

Regulation  (EC)  No  45/2001  shall  apply  to  the  processing  of  personal  data  carried 
out by ESMA, EBA and EIOPA in the context of this Regulation. 

CHAPTER IV 

COOPERATION WITH THIRD COUNTRY AUTHORITIES AND WITH INTERNATIONAL 
ORGANISATION AND BODIES 

Article 57 

Agreement on exhange of information 

1. 

The  competent  authorities  and  ESMA  may  conclude  cooperation  agreements  on 
exchange of information with the competent authorities of third countries only if the 
information  disclosed  is  subject,  in  the  third  countries  concerned,  to  guarantees  of 
professional secrecy which are at least equivalent to those set out in Articles 37 and 
55. 

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Such exchange of information shall be intended for the performance of the tasks of 
those competent authorities. 

Where such exchange of information involves the transfer of personal data to a third 
country,  Member  States  shall  comply  with  Directive  95/46/EC  and  ESMA  shall 
comply with Regulation (EC) No 45/2001. 

The  competent  authorities  shall  cooperate  with  the  competent  authorities  or  other 
relevant  bodies  of  third  countries  regarding  the  quality  assurance  reviews  and 
investigations of auditors and audit firms. ESMA shall contribute to this cooperation.  

ESMA  shall  contribute  to  the  establishment  of  supervisory  convergence  with  third 
countries. 

Where the cooperation or exchange of information is related to audit working papers 
or other documents held by statutory auditors or audit firms, Article 47 of Directive 
2006/43/EC shall apply. 

2. 

3. 

Article 58 

Disclosure of information received from third countries 

The competent authority of a Member State or ESMA may disclose the information received 
from competent authorities of third countries only if it has obtained the express agreement of 
the  competent  authority  that  has  transmitted  the  information  and,  where  applicable,  the 
information  is  disclosed  only  for  the  purposes  for  which  that  competent  authority  gave  its 
agreement, or where such disclosure is necessary for legal proceedings.  

Article 59 

Disclosure of information transferred to third countries 

The  competent  authority  of  a  Member  State  or  ESMA  shall  require  that  information 
communicated by them to a competent authority of a third country may be disclosed by that 
competent authority to third parties or authorities only with the prior express agreement of the 
competent  authority  which  has  transmitted  the  information,  in  accordance  with  its  national 
law  and  provided  that  the  information  is  disclosed  only  for  the  purposes  for  which  that 
competent  authority  of  the  Member  State  or  ESMA  has  given  its  agreement,  or  where  such 
disclosure is necessary for legal proceedings.  

Article 60 

Cooperation with international organisation and bodies 

ESMA  shall  cooperate  with 
international auditing standards.  

the 

international  organisations  and  bodies  elaborating 

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TITLE V 

ADMINISTRATIVE SANCTIONS AND MEASURES  

Article 61 

Administrative sanctions and measures 

1. 

2. 

3. 

1. 

2. 

Member  States  shall  lay  down  the  rules  on  administrative  sanctions  and  measures 
applicable in cases of breaches of the provisions of this Regulation identified in the 
Annex  to  the  persons  responsible  for  those  breaches  and  shall  take  all  measures 
necessary to ensure that they are implemented. The sanctions and measures provided 
for shall be effective, proportionate and dissuassive. 

By [24 months after the entry into force of this Regulation] the Member States shall 
notify the rules referred to in paragraph 1 to the Commission and ESMA. They shall 
notify  the  Commsison  and  ESMA  without  delay  of  any  subsequent  amendment 
thereto. 

This  Article  and  Articles  62  to  66  are  without  prejudice  to  provisions  of  national 
criminal law.  

Article 62 

Sanctioning powers 

This Article shall apply to breaches of the provisions of this Regulation identified in 
the Annex. 

Without prejudice to the supervisory powers of competent authorities in accordance 
with Article 38, in case of a breach referred to in paragraph 1, competent authorities 
shall,  in  conformity  with  national  law,  have  the  power  to  impose  at  least  the 
following administrative measures and sanctions: 

(a) 

(b) 

(c) 

an  order  requiring  the  person  responsible  for  the  breach  to  cease  the  conduct 
and to desist from a repetition of that conduct; 

a public statement which indicates the person responsible and the nature of the 
breach, published on the website of competent authorities; 

a temporary prohibition for the statutory auditor, the audit firm or the key audit 
partner  to  carry  out  statutory  audits  of  public-interest  entities  and/or  signing 
audit  reports  within  the  meaning  of  Article  22  with  effect  throughout  the 
Union, until the breach has been brought to an end; 

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(d)  declaring  that  the  audit  report  does  not  meet  the  requirements  of  Article  22, 

until the breach has been brought to an end;  

(e) 

(f) 

(g) 

(h) 

a  temporary ban  against  a  member of an audit firm or a public-interest entity 
administrative  or  management  body  to  exercise  functions  in  audit  firms  or 
public-interest entities;  

administrative  pecuniary  sanctions  of  up  to  twice  the  amount  of  the  profits 
gained or losses avoided because of the breach where those can be determined; 

in respect of a natural person, administrative pecuniary sanctions of up to EUR 
5 000 000 or, in the Member States where the Euro is not the official currency, 
the corresponding value in the national currency on the date of entry into force 
of this Regulation; 

in respect of a legal person, administrative pecuniary sanctions of up to 10% of 
its total annual turnover in the preceding business year; where the legal person 
is  a  subsidiary  of  a  parent  undertaking  as  defined  in  Articles  1  and  2  of 
Directive  83/349/EEC,  the  relevant  total  annual  turnover  shall  be  the  total 
annual turnover resulting from the consolidated account of the ultimate parent 
undertaking in the preceding business year. 

3. 

Member  States  may  give  to  competent  authorities  other  sanctioning  powers  in 
addition  to  those  referred  to  in  paragraph  2  and  may  provide  for  higher  levels  of 
administrative pecuniary sanctions that those established in that paragraph. 

Article 63 

Effective application of sanctions 

1. 

When  determining  the  type  of  administrative  sanctions  and  measures,  competent 
authorities shall take into account all relevant circumstances, including: 

(a) 

the gravity and the duration of the violation; 

(b) 

the degree of responsibility of the responsible person; 

(c) 

(d) 

(e) 

the  financial  strength  of  the  responsible  person,  as  indicated  by  the  total 
turnover of the responsible undertaking or the annual income of the responsible 
natural person; 

the  importance  of  the  profits  gained  or  losses  avoided  by  the  responsible 
person, insofar as they can be determined; 

the level of cooperation of the responsible person with the competent authortiy, 
without  prejudice  to  the  need  to  ensure  disgorgements  of  profits  gained  or 
losses avoided by that person; 

(f) 

previous violations by the responsible person. 

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Additional  factors  may  be  taken  into  account  by  competent  authorities,  if  such 
factors are specified in national law. 

2. 

EBA,  EIOPA  and  ESMA  shall  jointly  issue  guidelines  addressed  to  competent 
authorities  in  accordance  with  Article  16  of  Regulation  No  (EU)  1093/2010, 
Regulation  No  (EU)  1094/2010  and  Regulation  No  (EU)  1095/2010  on  types  of 
administrative  measures  and  sanctions  and  level  of  administrative  pecuniary 
sanctions to be applied in individual cases within the national legal framework. 

Article 64 

Publication of sanctions and measures 

Every  administrative  measure  or  sanction  imposed  for  breach  of  this  Regulation  shall  be 
published  without  undue  delay,  including  at  least  information  on  the  type  and  nature  of  the 
breach  and  the  identity  of  the  persons  responsible  for  it,  unless  such  publication  would 
seriously  jeopardise  the  stability  of  financial  markets.  Where  publication  would  cause 
disproportionate  damage  to  the  parties  involved,  competent  authorities  shall  publish  the 
measures and sanctions on an anonymous basis. 

Competent authorities shall inform ESMA, without undue delay, of any sanction or measure 
adopted for breach of this Regulation. 

The publication of sanctions shall respect fundamental rights as laid down in the EU Charter 
of  Fundamental  Rights,  in  particular  the  right  to  respect  for  private  and  family  life  and  the 
right to the protection of personal data. 

Article 65 

Appeal 

Member  States  shall  ensure  that  decisions  taken  by  the  competent  authority  in  accordance 
with this Regulation are subject to the right of appeal. 

Article 66 

Reporting of breaches  

1. 

2. 

Member  States  shall  establish  effective  mechanisms  to  encourage  reporting  of 
breaches of this Regulation to the competent authorities. 

The mechanisms referred to in paragraph 1 shall include at least: 

(a) 

specific procedures for the receipt of reports of breaches and their follow-up; 

(b) 

appropriate protection for persons who report potential or actual breaches; 

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(c) 

(d) 

protection  of  personal  data  concerning  both  the  person  who  reports  the 
potential  or  actual  breaches  and  the  accused  person  in  compliance  with  the 
principles laid down in Directive 95/46/EC; 

appropriate procedures to ensure the right of the accused person of defence and 
to be heard before the adoption of a decision concerning him and the right to 
seek  effective  remedy  before  a  tribunal  against  any  decision  or  measure 
concerning him. 

Audit  firms  and  public-interest  entities  shall  establish  appropriate  procedures  for 
their  employees  to  report  potential  or  actual  breaches  of  this  Regulation  internally 
trough a specific channel. 

Article 67 

Exchange of information with ESMA 

Competent  and  judicial  authorities  shall  provide  ESMA  annually  with  aggregated 
information  regarding  all  administrative  measures,  sanctions  and  fines  imposed  in 
accordance  with  Articles  61,  62,  63,  64,  65  and  66.  ESMA  shall  publish  this 
information in an annual report. 

Where the competent authority has disclosed administrative measures, sanctions and 
fines to the public, it shall simultaneously report that fact to ESMA.  

TITLE VI 

DELEGATED ACTS, REPORTING AND TRANSITIONAL AND FINAL PROVISIONS 

Article 68 

Exercise of the delegation 

The  power  to  adopt  delegated  acts  is  conferred  on  the  Commission  subject  to  the 
conditions laid down in this Article. 

The  power  to  adopt  delegated  acts  referred  to  in  Articles  10(6)  and  50(4)  shall  be 
conferred on the Commission for an indeterminate period of time from [date of entry 
into force of this Regulation]. 

The  delegation  of  power  referred  to  in  Articles  10(6)  and  50(4)  may  be  revoked  at 
any time by the European Parliament or by the Council. A decision to revoke shall 
put  an  end  to  the  delegation  of  the  power  specified  in  that  decision.  It  shall  take 
effect the day following the publication of the decision in the Official Journal of the 
European Union or at a later date specified therein. It shall not affect the validity of 
any delegated acts already in force. 

3. 

1. 

2. 

1. 

2. 

3. 

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4. 

5. 

As soon as it adopts a delegated act, the Commission shall notify it simultaneously to 
the European Parliament and to the Council. 

A  delegated  act  adopted  pursuant  to  Articles  10(6)  and  50(4)  shall  enter  into  force 
only  if  no  objection  has  been  expressed  either  by  the  European  Parliament  or  the 
Council within a period of [two months] of notification of that act to the European 
Parliament  and  the  Council  or  if,  before  the  expiry  of  that  period,  the  European 
Parliament  and  the  Council  have  both  informed  the  Commission  that  they  will  not 
object.  That  period  shall  be  extended  by  [two  months]  at  the  initiative  of  the 
European Parliament or of the Council. 

Article 69 

Report 

By  X  X  20XX  [five  years  after  the  end  of  the  transitional  period]  the  Commission  shall 
prepare a report on the application of this Regulation. The report shall take due account of the 
report prepared by ESMA referred to in the fourth subparagraph of Article 46(4). 

Article 70 

Transitional provision 

1. 

By  derogation  from  Articles  32and  33,  the  following  requirements  shall  apply  to 
contracts  for  the  provision  of  statutory  audit  to  public-interest  entities  which  are  in 
force at [date of entry into force of this Regulation]: 

(a) 

(b) 

any audit contract entered into before XX/XX/XXXX [the date of adoption of 
the Commission proposal] which is still in force on [the date of entry into force 
of  this  Regulation]  shall  remain  applicable  for  a  maximum  period  of  four 
accounting years after [the date of entry into force of this Regulation];  

any  audit  contract  entered  into  after  XX/XX/XXX  [the  adoption  of  the 
Commission proposal] but before XX/XX/XXXX [the date of entry into force 
of  this  Regulation]  and  which  is  still  in  force  shall  remain  applicable  for  a 
maximum  period  of  five  accounting  years  after  XX/XX/XXXX  [the  date  of 
entry into force of this Regulation];  

(c)  when an audit contract referred to in points (a) or (b) of this paragraph expires 
or is terminated, the public-interest entity may renew such contract once with 
the  same  audit  statutory  auditor  or  audit  firm,  without  the  provisions  Article 
31(3) being applicable. Such renewed contract shall be subject to the following 
maximum duration: 

(i) 

1 year: if the auditor has been providing services to the audited entity for 
a consecutive period exceeding 100 years;  

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(ii)  2 years: if the auditor has been providing services to the audited entity for 

a consecutive period between 51 and 100 years; 

(iv)  3 years: if the auditor has been providing services to the audited entity for 

a consecutive period between 21 and 50 years; 

(v)  4 years: if the auditor has been providing services to the audited entity for 

a consecutive period between 11 and 20 years; 

(vi)  5 years: if the auditor has been providing services to the audited entity for 

a consecutive period not exceeding 10 years. 

By  derogation  from  the  criteria  set  out  in  point  (c),  the  audit  contract  may 
remain  applicable  until  the  end  of  the  first  accounting  year  ending  after  [2 
years after the entry into force of this Regulation]. 

By  derogation  from  points  (a)  to  (c),  when  national  rules  establish  a  maximum 
duration of the contractual relationship between the statutory auditor or the audit firm 
and the audited entity which does not exceed 9 years and require the audited entity to 
select  a  different  statutory  auditor  or  audit  firm  when  such  maximum  duration  is 
reached,  the  audit  contract  may  remain  applicable  until  the  end  of  that  maximum 
duration period. 

2. 

Article  33  shall  apply  to  any  audit  contract  entered  into  after  […]  [the  date  of  the 
entry into force of this Regulation] but before […] [[2 years after the entry into force 
of this Regulation].  

Article 32(3) shall only apply to such contract after the expiration or termination of 
the first renewal of such contract. 

Article 71 

National provisions 

The  Member  States  shall  make  such  provision  as  is  appropriate  to  ensure  the  effective 
application of this Regulation. 

Article 72 

Entry into force 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

It shall apply from [2 years after the entry into force].  

However,  Article  32(7)  shall  apply  from  […]  [the  date  of  the  entry  into  force  of  the 
Regulation] and Article 10(5) shall apply from […] [3 years after the entry into force of the 
Regulation]. 

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This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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ANNEX  

I. 

Breaches by statutory auditors, audit firms or key audit partners 

A. Breaches related to conflicts of interest, organisational or operational requirements 

1. 

2. 

3. 

4. 

5. 

6. 

The statutory auditor or audit firm infringes Article 6(1) by not establishing adequate 
policies  and  procedures  to  ensure  compliance  with  the  minimum  organisational 
requirements, as set out in paragraph 1(a) to (k). 

The  statutory  auditor  or  the  key  audit  partner  who  carries  out  a  statutory  audit  on 
behalf  of  an  audit  firm  infringes  Article  8(1)(a)  by  taking  up  a  key  management 
position in the audited entity before a period of at least two years has elapsed since 
he  or  she  resigned  as  a  statutory  auditor  or  key  audit  partner  from  the  audit 
engagement. 

The  statutory  auditor  or  the  key  audit  partner  who  carries  out  a  statutory  audit  on 
behalf of an audit firm infringes Article 8(1)(b) by becoming a member of the audit 
committee of the audited entity or of an equivalent body, before a period of at least 
two  years  has  elapsed  since  he  or  she  resigned  as  a  statutory  auditor  or  key  audit 
partner from the audit engagement.  

The  statutory  auditor  or  the  key  audit  partner  who  carries  out  a  statutory  audit  on 
behalf  of  an  audit  firm  infringes  Article  8(1)(c)  by  becoming  a  non-executive 
member  of  the  administrative  body  or  a  member  of  the  supervisory  body  of  the 
audited  entity,  before  a  period  of  at  least  two  years  has  elapsed  since  he  or  she 
resigned as a statutory auditor or key audit partner from the audit engagement.  

The statutory auditor or audit firm infringes Article 9(2) by not ensuring that related 
financial audit services provided to the audited entity do not exceed 10% of the fees 
paid by the audited entity for the statutory audit. 

The  statutory  auditor  or  audit  firm  infringes  Article  10  by  providing  services  other 
than statutory audit services or related financial audit services to the audited entity. 

B. Breaches related to the performance of the statutory audit 

7. 

8. 

9. 

The statutory auditor or the audit firm infringes Article 16(3) by not keeping records 
of the cases when his, her or its employees do not respect the provisions contained in 
this Regulation or by not preparing an annual report of the measures taken in order to 
ensure compliance with those provisions. 

The  statutory  auditor  or  the  audit  firm  infringes  Article  16(4)  by  not  maintaining  a 
client account record that includes the data referred to in point (a), (b) and (c) of the 
same paragraph. 

The statutory auditor or the audit firm infringes Article 16(5) by not creating an audit 
file for each statutory audit carried out which contains the information referred to in 
points (a) to (j) of the same paragraph. 

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10. 

11. 

12. 

The statutory auditor or the audit firm infringes Article 17(1)(c) by not informing the 
competent authority referred to in Article 36 of an incident which has or may have 
serious consequences for the integrity of his, her or its statutory activity. 

The  statutory  auditor  or  the  audit  firm  infringes  Article  17(2)  by  not  informing  the 
competent  authority  supervising  public-interest  entities  of  any  fraud  committed  or 
attempted with regard to the financial statements of the audited entity. 

The  statutory  auditor  or  the  audit  firm  infringes  Article  19  by  not  ensuring  that  an 
internal  quality  control  review  is  done  according  to  the  requirements  set  out  in 
paragraphs 2 to 6 of that Article.  

C. Breaches related to audit reporting  

13. 

14. 

15. 

The statutory auditor or the audit firm infringes Article 22 by not providing an audit 
opinion prepared in accordance with the requirements set out in paragraphs 2, 3, 4, 5 
and 7 of that Article. 

The  statutory  auditor  or  the  audit  firm  infringes  Article  23  by  not  submitting  an 
additional  report  to  the  audit  committee  of  the  audited  entity  that  is  prepared  in 
accordance with the requirements set out in paragraphs 2 to 5 of that Article. 

The statutory auditor or the audit firm infringes Article 25 by not reporting promptly 
to the competent authorities supervising public-interest entities any fact or decision 
concerning that public-interest entity of which he, she or it has become aware while 
carrying  out  that  statutory  audit  and  which  might  be  linked  to  any  of  the  breaches 
mentioned in points (a) to (c) of the first paragraph of Article 25.  

D. Breaches related to disclosure provisions  

16. 

17. 

18. 

19. 

The  audit  firm  infringes  the  first  subparagraph  of  Article  26(1)  in  connection  with 
Article 26(4) by not making public on its website its annual financial report within 
the meaning of paragraph 2 of Article 4 of Directive 2004/109/EC at the latest four 
months after the end of each financial year and making it available for at least five 
years. 

The  statutory  auditor  infringes  the  second  subparagraph  of  Article  28(2)  in 
connection with Article 27(1) by not making public on his or her website his or her 
annual income statement and making it available for at least five years. 

The statutory auditor or the audit firm infringes Article 26(2) by not showing in his 
or  her  annual  income  statement  or  in  its  annual  financial  report  the  fees  received 
from  the  statutory  audit  of  annual  and  consolidated  financial  statements  of  public-
interest  entities  and  entities  belonging  to  a  group  of  companies  whose  parent 
undertaking  is  a  public-interest  entities  separated  from  the  fees  received  from  the 
statutory audit of annual  and consolidated financial statements of other entities and 
fees charged for related financial audit services as defined in Article 10. 

The statutory auditor or audit firm that belong to a network infringes Article 26(3) by 
not providing as annex to the income statement or to the annual financial report the 
information referred to in point (a) to (d) of Article 26(3), unless the derogation of 
the second subparagraph of that paragraph applies.  

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20. 

21. 

22. 

The  statutory  auditor  or  audit  firm  infringes  Article  27  by  not  or  not  timely 
publishing a transparency report including information set out in paragraph 2 of that 
Article and, where applicable, the information set out in Article 28. 

The statutory auditor or audit firm infringes Article 29 by not providing annually to 
his,  her  or  its  competent  authority  referred  to  in  Article  35(1)  a  list  of  the  audited 
public-interest entities by revenue generated from them. 

The  statutory  auditor  or  audit  firm  infringes  Article  30(1)  by  not  keeping  the 
documents and information referred to in Article 30(1). 

E. Breaches related to the appointment of statutory auditors or audit firms by public-interest 
entities 

23. 

24. 

The  statutory  auditor  or  audit  firm  infringes  Article  33(2)  by  undertaking  the 
statutory  audit  of  the  public–interest  entity  after  the  expiry  of  the  two  consecutive 
engagements referred to in Article 33(1) before the period of four years has elapsed. 

The  statutory  auditor  or  audit  firm  infringes  Article  33(6)  by  not  presenting  a 
complete handover file at the end of the audit engagement to the incoming statutory 
auditor or audit firm.  

F. Breaches related to quality assurance  

25. 

II. 

A. 

1. 

2. 

3. 

4. 

The  statutory  auditor  or  audit  firm  infringes  Article  40(6)  by  not  following  up  the 
recommendations of inspections within the period set out by the competent authority. 

Breaches by public-interest entities 

Breaches related to the appointment of statutory auditors or audit firms  

Without  prejudice  to  Article  31(2),  (3)  and  (4),  a  public-interest  entity  infringes 
Article  31(1)  by  not  establishing  an  audit  committee  and/or  by  not  appointing  the 
required  number  of  independent  members  and/or  by  not  appointing  the  required 
number of members having specific competence in accounting and/or auditing. 

A  public-interest  entity  infringes  Article  32(1)  by  not  appointing  the  statutory 
auditor(s) or audit firm(s) in accordance with the conditions set out in Article 32(2) 
to (6). 

A public-interest entity infringes Article 33 by employing the same statutory auditor 
or audit firm for a period longer than the one referred to in Article 33. 

A public-interest entity infringes Article 34 by dismissing a statutory auditor or audit 
firm in the absence of proper grounds.  

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