10 Statutory audit of annual accounts
| (25479)
7677/04
COM(04) 177
| Draft Directive on statutory audit of annual accounts and consolidated accounts and amending Council Directives 78/660/EEC and 83/349/EC
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| Legal base | Article 44(2)(g) EC; co-decision; QMV
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| Department | Trade and Industry
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| Basis of consideration | SEM of 2 March 2005
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| Previous Committee Report | HC 42-xxxiv (2003-04), para 7 (27 October 2004); HC 42-xxxi (2003-04), para 5 (15 September 2004); HC 42-xxiii (2003-04), para 5 (16 June 2004); and see (24659) 10739/03: HC 63-xxxi (2002-03), para 13 (10 September 2003)
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| To be discussed in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
10.1 We considered this proposal on 16 June, 15 September and
27 October 2004. We noted that it would replace the conditions
for the approval of statutory auditors which are now contained
in a Directive adopted by the Council in 1984 (the "8th
Company Law Directive").[10]
The proposal would clarify the duties of statutory auditors,
provide for their independence and ethical standards, introduce
a requirement for external quality assurance and provide for public
oversight of the audit profession and for improved co-operation
between oversight bodies in the EU.
10.2 We were concerned that, despite the promise
given by the Commission at the beginning of 2004 that it would
undertake a Regulatory Impact Assessment, it had not honoured
this commitment. We supported the Minister in her efforts to cause
the Commission to produce such an assessment. We also doubted
the legitimacy, in an instrument to be adopted under the EC Treaty,
of the reference (in Article 30(2) of the proposal) to criminal
penalties where statutory audits were not carried out in accordance
with the Directive, and we commended the Minister and her officials
for securing the removal from the proposal of this reference
to criminal sanctions in an EC instrument.
10.3 We noted that the Minister had promised to provide
the Government's own Regulatory Impact Assessment under cover
of a Supplementary Explanatory Memorandum. We considered it important
to see this, or at the very least some further analysis of the
costs and benefits of the proposal in the light of the consultation
the Minister was conducting, before clearing the document from
scrutiny.
The Minister's reply
10.4 By way of reply to our concerns, the Minister
for Industry and the Regions and Deputy Minister for Women and
Equality (Jacqui Smith) has submitted a Supplementary Explanatory
Memorandum dated 2 March 2005 to which is attached an updated
Regulatory Impact Assessment.
10.5 The Minister explains that the United Kingdom
had concerns about the definition of "public interest entity"
(to which a more onerous audit regime would apply), but that it
had been successful in clarifying the definition and in reducing
the number of provisions which would apply to such entities.
The Minister also explains that the Government has secured clarification
from the Commission that the "comitology"[11]
provisions in Article 48 of the proposal would not be used to
make rules relating to the independence of auditors.
10.6 The Regulatory Impact Assessment indicates that
benefits would accrue from the Directive in the form of better-quality
audits and greater confidence in the audit process, which should
provide wider economic benefits by helping to restore faith in
the corporate reporting systems which underpin capital markets.
The Assessment considers that, while the UK regime is fundamentally
sound, "not all Member States are as far down the road as
the UK" and that confidence is a European, not just a UK,
concern, so that a harmonised approach would be appropriate. Conversely,
a decision not to implement the Directive would incur the risk
of a lack of confidence in the UK's capital markets and increased
costs for investors and UK businesses in dealing with different
auditing regimes and standards across the EU, with potential disadvantages
for UK auditors seeking business in other Member States. The Assessment
identifies a number of one-off costs arising from implementation
of the Directive (notably in obtaining and storing information
not currently held on a public register, in publishing annual
"transparency reports" and in implementing the changes
required for companies' audit committees), but against this are
set the savings in search costs by investors and other stakeholders.
For the most part, implementation would not result in additional
costs, since UK requirements are already consistent with the Directive.
Conclusion
10.7 We are grateful to the Minister for this
further information, which we have found helpful. We have no further
questions to raise with the Minister and we now clear the document.
10 OJ No. L 126 of 12.5.84, p. 20. Back
11
A procedure whereby implementing measures may be adopted by the
Commission under delegated powers. Back
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