Select Committee on European Union Fortieth Report


Letter from Gerry Sutcliffe MP, Minister for Employment Relations and Consumer Affairs, Department of Trade and Industry to the Chairman

  Further to my letter of 31 October 2005[141] I am writing to inform you that a first reading deal has been achieved between the European Council and the European Parliament to this Directive. I am attaching a copy of the text for your information. As you know, your Committee lifted its scrutiny reserve on this proposal by letter on 18 March 2005.

  The European Commission published the proposed 8th Company Law (Audit) Directive on 16 March 2004. This proposal dealt with the statutory audit of annual and consolidated accounts and was a response to the Enron/Worldcom and Parmalat financial scandals. The purpose of this proposed Directive was to increase confidence in both the statutory audit and statutory auditors.

  After lengthy and detailed discussions between Member States, in the Council, and between the Council and the European Parliament (led by the UK as Presidency) a number of compromises were reached that allowed this Directive to reach a "first reading deal" (agreement for this Directive to be approved, without discussion, at a forthcoming Council meeting was given by Coreper on 30 March 2006).

  Although a considerable number of areas contained in the Directive already form part of the UK approach to statutory audit I consider that this Directive will increase confidence in stakeholders and shareholders in the audit function.

  The forthcoming Company Law Reform Bill will include two areas where we consider that primary legislation is necessary to implement the requirements in the Directive. These are (a) defining "statutory audit" to include the audits of banks and other financial institutions and insurance undertakings and (b) making requirements for statutory auditors of traded non-Community Companies (third country auditors).

10 April 2006

141   Correspondence with Ministers, 45th Report of Session 2005-06, HL Paper 243, p 386. Back

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