The European Commission has decided to allow EU audit oversight authorities to exchange audit work papers with the audit oversight boards in Japan, Canada and Switzerland, while hoping to ultimately bring the US into such an arrangement. Commissioner for the Internal Market Charlie McCreevy noted that auditing has long moved beyond national borders and the financial crisis has shown how much the markets interact with each other. However, the crisis has also highlighted the lack of cooperation and coordination among audit oversight authorities. Getting audit regulation right in global financial markets requires close co-operation with trading partners, he said.
The EU Audit Directive, 2006/43/EC, allows EU audit oversight bodies to transfer audit working papers or other documents held by statutory auditors and audit firms to the competent authorities of a third country that have been declared adequate by the Commission and there are reciprocal working arrangements. The Directive envisages the possibility of EU regulators being able to rely in whole or in part on the work of non-EU regulators.
The Commission’s aim has always been to move towards full reliance on the audit inspections of the public oversight bodies in non-EU countries. In practice, this would mean that audit firms from these countries would no longer have to be inspected by European public oversight bodies, and EU audit boards could rely on the audit inspections that were carried out by their counterparts in these countries. In return, EU oversight bodies would expect the same treatment for EU audit firms. Putting in place this model of cooperation would go a long way towards restoring the confidence of investors, said the Commissioner, which must be based on mutual trust.
Some trading partners such as Canada and Japan seem to be open towards such an agenda, he continued, but the same is not true for the United States. While the EU is committed to facilitate US inspections, the Union currently has no guarantee that the United States will reciprocate. This is not good for the confidence of investors, said Commissioner McCreevy, nor does it send the right signal to the EU's audit oversight bodies.
He urged the SEC and the PCAOB to agree to the draft policy statement of December 2007 on how to deal with overseas oversight bodies and resolve any further outstanding issues. In the draft statement, the Commission declared the PCAOB adequate for allowing the competent authorities of EU Member States to enter into working arrangements with it for the transfer of audit working papers. The Commissioner has consistently urged the SEC and PCAOB to embrace a position of full reliance on the audit firm inspections conducted by different oversight bodies.
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