Registration of third country auditors

Background

The Directive on Statutory Audit 2006/43/EC ('the Audit Directive'), adopted by the European Union on 17 May 2006, and due for transposition into the national law of Member States by 29 June 2008, includes specific provisions on the regulation of the auditors of non-EU¹ companies that have issued securities admitted to trading on EU regulated markets ('third country audit entities').

Article 45 of the Audit Directive sets out regulatory requirements for the registration of third country audit entities, for continuing oversight including the external monitoring of the quality of their audit work, and for investigations and sanctions.

Article 46 allows Member States to derogate from these requirements where the third country audit entity is subject to a system of public oversight, inspections and investigations which the European Commission has recognised as equivalent, or where the third country audit entity is within transitional arrangements adopted by the European Commission

Deciding on equivalence is a matter for the European Commission and Member States. There is a work programme to assess the equivalence of third countries’ regulatory systems. To date no third country regulatory system has been recognised as equivalent by the European Commission.

The Commission Decision 2008/627/EC of 29 July 2008 exempts for a transitional period² certain third country audit entities³ from the requirements of Article 45, on the condition that they provide relevant Member States with specific information. Member States may register such audit firms to this end.

EU auditor oversight bodies, with the support of the European Commission, recognise the importance of putting in place practical arrangements for third country audit firms that are not over-burdensome and reflect as far as possible a common approach across the EU. To this end, the members of the European Group of Auditors' Oversight Bodies (EGAOB) have worked together with the objective that third country audit entities will be able to use application forms and guidance material that is as similar as national regulatory systems permit.

We have therefore developed application forms and guidance material for registration in the United Kingdom that follow as closely as possible the common material agreed amongst Member states within the EGAOB. A third country audit entity that needs to register in more than one Member State will still have to apply separately for each registration but the form of application should in most respects be similar.

The further intention is that Member States:

• will work closely together in considering applications for registration to minimise the chance that different decisions on registration will be taken in different Member States. However, registration remains necessary in each Member State where a non-EU company's securities are admitted to trading on a regulated market;
• will, in the longer term, work closely together, and with third-country audit regulators, to minimise overlapping or duplicative regulatory requirements, for example on external inspections of third country audit entities.

Who must register with the Professional Oversight Board?

The Financial Services Authority in the United Kingdom sets the legal requirements in respect of the auditors of the relevant third country issuers. These can be found in their Policy Statement 08/6 published in June 2008. An audit report of a relevant issuer that is signed by an audit entity that does not meet these requirements has no legal effect in the United Kingdom.

The effect of this is as follows:

An audit entity must register with the Professional Oversight Board if it audits the annual or consolidated accounts of a company incorporated outside the European Union/European Economic Area whose transferable securities are admitted to trading on a regulated market⁴ in the United Kingdom. However:

1. no registration is required if the company is an issuer exclusively of debt securities within the meaning of Article 2 (1) (b) of the Directive, the denomination of which is at least EUR 50 000 per unit or, in the case of debt securities denominated in another currency, equivalent, at the date of issue, to at least EUR 50 000.
2. no registration is necessary in relation to the audit of accounts relating to a financial year starting prior to 28 June 2008.
3. no registration is required under the current legal framework in the United Kingdom if the audit entity is a registered auditor in the United Kingdom or is approved in accordance with the Audit Directive by an EEA competent authority to carry out audits of annual accounts or consolidated accounts required by Community law.

How To Apply

A third country audit entity that wishes to register with the Professional Oversight Board must decide whether to apply in accordance with the requirements of the Commission Decision on transitional arrangements (Form A) or in accordance with the full registration requirements of Article 45 (Form B). You should read the detailed guidance notes and forms to help you decide. There is full guidance with each form.

To apply for registration a third country audit entity must complete and submit the following forms, including all applicable annexes indicated in the forms:

Form A (UK) can only be used by a third country audit entity whose home country is one of the third countries to which the European Commission has granted a transitional period and who is able to meet the conditions laid down in the Commission Decision

Form B (UK) must be used by all other applicants.

You should download the relevant forms from this website, complete them electronically, and send them to the Professional Oversight Board by e-mail and by post. You should also make sure that you pay the relevant fee ( see GN TCA2 Registration Fees for Third Country Audit Entities ).

Registration fees

A registration fee is payable on application and on each anniversary of the date of registration. Please see GN TCA2 Registration Fees for Third Country Audit Entities. The fees are intended to cover the costs of setting up and running the system of registration and we have made clear that we shall review the level of fees in the light of experience.

Form A (UK)
Form A (Annexes)
Frequently Asked Questions – Form A
Form B (UK)
Form B (Annexes)
Frequently Asked Questions – Form B
GN TCA1 Good Repute
GN TCA2 Registration Fees for Third Country Audit Entities
Form U1 (UK) Updating Registration Information
Form U1 Annexes
Questionnaire for Issuers
Questionnaire for Audit Firms
Note on the Legal Framework in the United Kingdom and POB Direction.

 

                                                                        
 

¹ For this purpose, the EU includes all members of the European Economic Area - that is EU Member States plus Norway, Iceland and Lichtenstein.
² The transitional period applies in respect of audits of annual accounts for financial years starting between 29 June 2008 and 1 July 2010.
³ The Commission Decision is applicable to third country audit entities (i) whose home country is one of the following Jersey, Isle of Man, Hong Kong, India, Indonesia, Israel, Japan, Kazakhstan, Malaysia, Mauritius, Mexico, Morocco, New Zealand, Pakistan, Russia, Singapore, South Africa, South Korea, Switzerland, Taiwan, Thailand, Turkey, Ukraine, United Arab Emirates, and United States of America, and (ii) who can provide to the Professional Oversight Board all the required information for registration specified in the Decision.
⁴ A list of the regulated markets in the European Union as of 1 March 2008 can be found via this link