European Commission Seeks Cooperation with PCAOB on Audit Oversight

The PCAOB and the European Commission need to agree on a common framework for the oversight of foreign audit firms, emphasized Commissioner for the Internal Market Charlie McCreevy in remarks at the Congress of German Public Auditors. Legislation in the European Union empowers the Commission to assess the equivalence of the oversight of audit firms in third countries. If PCAOB oversight is deemed equivalent, said the commissioner, EU member states would not need to carry out the oversight of foreign audit firms themselves but could rely on PCAOB oversight. EU officials have had numerous meetings with the Board. PCAOB Chair Mark Olson and Member Charles Niemeier have been important driving forces in this process.

Noting the importance of high quality audits of financial statements, Comm. McCreevy said that audit oversight bodies are also working on the issue of quality assurance. The Commission wants to give guidance to statutory auditors and audit firms on how to carry out high quality audits of listed companies. For other types of audits it would seem that the Statutory Audit Directive already provides a sufficient set of principles and that there would be no need for further recommendations. The audit profession has been included in the Commission’s deliberations.

More broadly, the commissioner views public oversight of audit firms as essential in improving audit quality by strengthening public confidence in auditing. It is not enough for them to write a law providing for the establishment of an oversight system, he continued, it mist be an effective oversight system. Independent oversight under the new Directive means that the times of self-regulation are over, he declared.

With regard to international auditing standards, continued the official, the Commission is considering the merits of introducing such standards in the European Union. Before the end of the year, the Commission will launch a study on the costs and benefits of introducing international auditing standards, as well as any potential differences with US standards. After completion of the study, the EC will be able to reassess the situation.

The commissioner has long held the view that the Directive on Statutory Audit foresees the eventual use of international auditing standards. But he cautioned that these standards must be subject to strict conditions. He said that the Commission will first have to determine if the current governance structure of the International Auditing and Assurance Standards Board is adequate both in terms of standard setting and public oversight. To help with this process, the Public Interest Oversight Board has been created. The Commission expects further improvements of the IAASB’s governance, including with regard to the funding of its standard-setting.