The Professional Oversight Board today published detailed proposals to give practical effect in the UK to new European requirements for the regulation of the auditors of companies from outside Europe that have issued securities on regulated markets within the EU. The requirements derive from the Statutory Audit Directive, which was agreed in 2006.In the UK there are some 570 such issuers from 50 countries audited by around 150 third country audit firms.

The European Commission is expected to finalise shortly a Decision on transitional arrangements that should reduce the regulatory burden on many of the audit firms for audits of accounts for financial periods starting between 29 June 2008 and 1 July 2010. While still needing to register in the UK before they sign a relevant audit report for UK purposes, audit firms from qualifying jurisdictions will not be subject to the UK’s systems of inspection and oversight. A significant minority of audit firms from other jurisdictions will still have to meet the full regulatory requirements of the Statutory Audit Directive. It is important therefore that all the issuers and audit firms affected look closely at our detailed proposals and send us their comments.

Paul George, Director of the Oversight Board said:

“We are keen that audit regulators around the world should rely on one another’s work to the maximum extent possible. We are therefore pleased that the European Commission has introduced transitional measures for those countries that on a preliminary assessment either have well developed independent audit regulation in place or have plans to introduce it. The Decision will give time for third countries to develop the necessary arrangements and for Europe to assess the equivalence of audit regulation in other countries.”

He added that

“We are also aware that some of the audit firms affected will have to register in a number of European countries and that this could prove unduly burdensome. Whilst there are no provisions in the Directive for a single registration that is valid across the EU, we are working closely with colleagues in other Member States to minimise the burdens and to coordinate decisions. In particular we are hoping to develop a common format for applications for registration.”

The European Commission’s Decision is expected to come into effect in July. This clears the way for the Oversight Board to put in place the detailed arrangements for the registration and regulation of third country audit firms. The Board is seeking comments on the most urgent issues raised by 27 June, and on the proposals generally by 25 July.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The Professional Oversight Board contributes to the achievement of the Financial Reporting Council’s own fundamental aim of promoting confidence in corporate reporting and governance. It has four main responsibilities:
   • a statutory obligation to oversee the regulation of auditors by the recognised accountancy bodies;
   • the monitoring of the quality of the auditing function in relation to economically significant entities;
   • independent oversight of the regulation of the accountancy profession by the professional accountancy bodies;
   • independent oversight of the regulation of the actuarial profession by the professional actuarial bodies.
3. The Professional Oversight Board is independent of the accountancy and actuarial professions. Its members have wide experience of business and the professions, the public sector, accountancy, auditing and actuarial work. The Chairman is Sir John Bourn KCB.
4. Articles 45 and 46 of the Statutory Audit Directive (2006/43/EC) set out the requirements. These are implemented into the law in the UK by provisions in the Companies Act 2006 and the Statutory Auditors and Third Country Auditors Regulations 2007. The responsibility for registering and regulating third country auditors within the statutory framework is delegated by Government to the Professional Oversight Board.
5. The European Commission published a revised draft of the Decision on 27 May. The Financial Services Authority is responsible for imposing the requirement that a company incorporated outside the EU whose transferable securities are admitted to trading on a UK regulated market must use auditors that meet particular criteria. The FSA Consultation Paper 07/24 proposes that the auditors must either be a UK or other EU statutory auditor, or must be on the UK register of third country auditors that the Oversight Board will maintain. These requirements are expected to apply in respect of audits of accounts for financial periods starting on or after 29 June 2008.
6. Press enquiries should be directed to Paul George, POB Director, on 0207 492 2340 or to John Grewe, Project Manager, 0207 492 2345.