France on collision course with Europe over audit rules

France has been asked to bring its audit independence rules in line with
European Union law or face a showdown in the European Courts of Justice.

French rules introduced last year mean audit firms cannot carry out non-audit
work for the companies they audit.

The rules apply between member states too, meaning UK firms might have to
give up non-audit work for a company that their French counterpart audits.

The rules, which contravene the Treaty of Rome, are doubly difficult because
French companies are all jointly audited.

In a statement, the European Commission’s internal markets office said: ‘The
commission takes the view that the rules in question go far beyond what is
required by article 22-2 [eighth directive] which establishes a general
framework for independence of statutory auditors in the EU.

‘The commission considers, in this respect, that the rules are not
proportionate to the objective of protecting independence. Moreover, the
provisions of the French code do not take into account the rules existing in
other member states that already protect the independence of foreign auditors.

‘The commission is therefore requesting France to amend the code of ethics
and bring it fully into line with EU law.’

A spokesman said the EC had been corresponding with the French authorities
since December last year.

‘We started the case in December with the first letter. The French answered
to that, but for legal reasons that correspondence is confidential.

‘We have now sent a reasoned opinion, as France did not respond in a
satisfactory way to the questions we posed,’ the spokesman said.

This is the second official challenge to the French rules. The firms last
year issued a challenge in court but it was rejected by the Conseil d’Etat, the
French high court.
The rules are already thought to have led to some UK firms having to give up
work for

French clients. The rules are similar to strict US laws on conflicts of
interest.

The French have until the end of the year to respond to the EC’s request.