Attempts by the European Commission to introduce Sarbanes-Oxley-style legislation are being closely monitored by the European Accountants Federation (FEE).
The European Union’s eighth company law directive is primarily concerned with auditing issues and the FEE has been watching the developments closely.
But the FEE is currently preparing a position paper on the directive, which is expected to stress the European accountancy profession’s support for the ‘threats and safeguards approach’ to auditor regulation. This was originally proposed by the commission, but subsequently struck out by the EU council of ministers. The FEE expressed disappointment at the text approved by ministers, which it said ‘may in fact serve to undermine the objective of high-quality audit’.
An FEE spokesman said the directive, though contentious, was ‘not exactly equivalent to section 404 of the Sarbanes-Oxley Act, because it doesn’t require an audited statement regarding the internal control of the company’.
The commission said the eighth directive would clarify the duties of statutory auditors, by establishing their independence and ethics through the introduction of compulsory external quality assurance.
It is hoped this will help to ensure robust public oversight of the audit profession, and improve co-operation between oversight bodies and the European Union. The directive also provided a basis for ‘effective and balanced’ international regulatory co-operation with oversight bodies.
‘Effective internal control systems minimise financial operational compliance risks. Listed companies should have these internal controls and risk management systems in place,’ said a memorandum to the directive.
The European Parliament’s legal affairs committee will consider the matter toward the end of this month, with a final vote by the full parliament in a plenary session expected on 31 March.
Given that the parliament and the council of ministers seem likely to approve different texts, a conciliation session to hammer out a compromise between the two sides is being widely predicted.
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