Sarbanes Oxley Expert
Learning and Online Certification Program
EU Sarbanes Oxley Expert -
Learning and Online Certification Program
The 8th Company Law
of the European Union (European Sarbanes Oxley)
Compliance Professionals Association (SOXCPA)
Association of Sarbanes Oxley professionals in the world
Which is the real reason behind
the 8th Company Law Directive?
Sometimes it is difficult to learn the truth.
need for better corporate governance and for more effective
B. An effort to make the EU market more
competitive and to attract more investors?
C. An effort
to avoid some of the extraterritorial provisions of U.S. laws
like Sarbanes-Oxley? For example, EU finance ministers have
raised concerns about U.S. authorities’ access to a European
firm’s audit work papers.
D. An effort to impose
extraterritorial obligations just like Sarbanes-Oxley? For
example, several non-EU companies now raise concerns about EU
authorities’ access to their audit work papers.
post Sarbanes-Oxley regulatory retaliation?
competition with the Offshore Financial Centers which, one more
time, try to enact new legislation to respond and to persuade
the EU that they enforce the same or equivalent measures.
G. An opportunity to regulate the EU market (and all the foreign
companies listed in EU) and to restore investor confidence?
Perhaps all the above!
It is difficult to learn the
truth. Fortunately, there are persons
like Frits Bolkestein.
He was commissioner in
charge of Internal Market in the EU. There are a couple of years
now I try to learn everything about him - what he has said and
what he has written.
I remember the first time I read
his article: "I cannot stand Switzerland cheating on Tax"
(published in the Financial Times).
He was talking
about one of my favourite subjects, the savings tax directive.
And he was clear:
“I cannot stand cheats or
free-riders. Nor can I stand those who make money from the
often-lucrative custom of tax cheats”
This was not
exactly the diplomatic language... I knew that I had found a
person that was not hiding his thoughts. I collect speeches and
bits of wisdom from persons like Frits Bolkestein like other
people collect stamps.
Frits Bolkestein was very
clear about the connection between the 8th Company Law Directive
of the European Union and the Sarbanes-Oxley Act.
May 2003: Commissioner
Bolkestein spoke against the proposed US oversight measures on
foreign audit firms. "I do not accept the imposition of US
standards on our firms and that is why the European Union
strongly opposes registration of EU audit firms with the United
States' Public Company Accounting Oversight Board. The EU will
regulate its own businesses," he said.
One year after
that, everything was different in the European Union.
March 2004: Speaking on 25
March at a meeting at the European Policy Center (EPC) Frits
"I think you are probably all already
aware that we have been working very hard for nearly a year with
our counterparts from the PCAOB to work out a cooperative way of
regulating audit firms which audit listed companies in both the
EU and the US.
Our objective has been to work
constructively together to define procedures and rationalise
work across our different jurisdictions, in order to ensure
international audit is as robust and sure as it can be.
There is no doubt that this is of vital economic importance. It
is also crucial for building confidence in capital markets, for
investors, for stability and for keeping the cost of capital as
low as possible.
In essence, what we have to deal with
here is a problem which is the epitome of globalism. Damage to
one financial market, damages the other. Financial markets today
are deeply interconnected."
Very very interesting.
What he said after that, was even more interesting
"Once the US
Congress had adopted the Sarbanes Oxley Act – at remarkable
speed – reflecting the pressure congressmen and senators were
under after the collapse of Enron, WorldCom etc., - but without
consultation - we in the EU were faced with a simple choice:
Either – we could oppose tooth and nail the Sarbanes Oxley
Act –and add yet another fiery dispute to our difficult
post-Iraq bilateral relationship.
Or – we could try to
find a constructive, cooperative way forward, jointly,
respecting to the maximum degree possible our different legal
traditions and cultures.
We decided on the latter."
This is what has happened.
I could not wait
to read more:
"Within the EU we have taken parallel
action. The Commission published its proposal for an 8th
Directive aiming at regulating the EU audit profession last
week, a proposal which sets out the framework for cooperation
between competent authorities including with third countries.
We are now expecting a PCAOB rule change in the near
future on the procedures the PCAOB will follow with third
In substance our European approach to the
regulation of the audit profession and that of the PCAOB are now
For example - we agree on:
independent public oversight;
- audit quality assurance;
more frequent rotation;
- and that auditors must have no
conflicts of interest, e.g. in supplying certain non audit
So, instead of "opposing tooth and nail the
Sarbanes Oxley Act", European Union chose to co-operate with the
United States to build confidence in capital markets.
We will live in a flat financial world.
The 8th company law directive
The Directive is the key measure for the EU to rebuild trust in
the audit function.
Although largely prepared well in advance of the Parmalat
scandal, the proposal has been adjusted to take into account the
specific implications of that case.
For example, it specifically addresses group audits and would
strengthen public oversight.
Based upon the experience in the Ahold case, the proposal also
clarifies the role of the audit committee in relation to the
internal control of the company.
The Parmalat case has shown that it is unacceptable that
group auditors should only be concerned with parts of the
group's business when they are in fact responsible for the audit
report concerning the group as a whole.
The proposal therefore clearly states that the group auditor
bears the full responsibility for the audit report on the
The proposed common requirements for public oversight at Member
State level would strengthen Member States' oversight systems
and make them more robust.
Independence of the public oversight systems from the profession
is important to restore public trust in statutory audits.
In response to issues raised in the Parmalat case, the proposed
Directive would require that only non-audit practitioners can
participate in the governance of the system of public oversight
of auditors of "public interest entities" in other words listed
companies, banks and insurance companies.
Following the Ahold case, the proposal now specifically states
that in the case of public interest entities, the audit
committee must monitor the effectiveness of the company's
internal control, internal audit (where applicable) and risk
The following measures
concern all statutory auditors and audit firms:
- update of the educational curriculum for auditors, which
must now also include knowledge of international accounting
standards (IAS) and international auditing standards (ISA)
- liberalisation of the ownership and the management of
audit firms by opening up the ownership and the management to
statutory auditors of all Member States
- introduction of an electronic registration system for
auditors and audit firms in all Member States, with a catalogue
of registration information that has to be permanently updated
- definition of basic principles of professional ethics
- legal underpinning of principles of auditor independence
including the duty of the statutory auditor or audit firm to
document factors which may affect auditors' independence (such
as performing other work for the companies they audit) and
safeguards against these sorts of risks
- obligation for Member States to set rules for audit fees that
ensure audit quality and prevent "low-balling" - in other words
preventing audit firms from offering the audit service for a
marginal fee and compensating this with the fee income from
other non-audit services
- requirement to use international auditing standards for
all EU statutory audits once those standards have been endorsed
under an EU procedure; Member States can only impose additional
requirements in certain defined circumstances
- possibility for the adoption of a common audit report
for financial statements that have been prepared on the basis of
International Accounting Standards (IAS). This would ensure that
all audit reports for financial statements prepared on the basis
of IAS are identical throughout the EU
- introduction of a requirement for Member States to
organise an audit quality assurance system that has to comply
with clearly defined principles, such as the independence of
reviewers and secure funding
- obligation for Member States to introduce effective
investigative and disciplinary systems
- adoption of common rules concerning the appointment and
the resignation of statutory auditors and audit firms (for
example, statutory auditors to be dismissed only if there is a
significant reason why they cannot finalise the audit) and
introduction of a requirement for companies to document their
communication with the statutory auditor or audit firm
- disclosure by companies, in the notes to their financial
statements, of the audit fee and other fees for non-audit
services delivered by the auditor.
Third country auditors
Following extensive consultation the EC published a Decision on
29 July 2008 on the transitional period for third country
(non-EU) auditors and audit entities auditing companies listed
on EU markets.
The Decision establishes a transitional
period from 29 June 2008 until 1 July 2010 for audit firms from
a list of third countries specified in the annex to the
Although the Decision means that audit firms
from these countries will benefit from not having to comply with
the full registration requirements during the transitional
period, they will still have to provide information on their
legal structure, a description of the network they belong to,
the applicable auditing standards and independence requirements,
a description of the internal quality control system and
information about the last quality assurance review.
Member States may still apply their investigations and penalties
to the concerned entities and may establish cooperative
arrangements with third country authorities, provided they meet
In the long-term the Directive
foresees two possibilities:
1. Third country auditors register with an EU Member State(s)
and are overseen by it (them)
2. The third country’s
oversight system is judged as equivalent, thereby exempting the
auditor from the need of EU registration and oversight.
Individual EU Member States may decide on such an
exemption as long as a decision on the equivalence of a third
country’s system has not already been adopted by the European
Community – ie, the EC in cooperation with EU Member States
through the comitology procedure.
Consequently, the EC
has noted the merits of comitology-based reciprocal decisions as
against decisions made by individual EU Member States.
It is also important to highlight that decisions on equivalence
are required to be made on the basis of reciprocity with the
Cooperation with third country
Under Article 47 of the
Directive, Member States may allow the transfer to the competent
authorities of a third country of audit working papers or other
documents held by the statutory auditors or audit firms approved
There are, however, a number of legal and data
protection issues to be addressed to ensure that information
which European auditors receive from their client companies is
kept confidential and does not get into the public domain of
third countries where such companies are listed or where the
parent company is incorporated.
The EC has communicated
that there will be no EU level decision regarding 2008 financial
statements – ie, audit firms will be subject to the legal
requirements in the relevant Member State.
financial statements following 2008, it is expected that the EC
will consider a Decision on the matter, the objective of which
would be to enable a Member State competent authority to
conclude bilateral arrangements with a third country competent
A possible route would be to propose an
“adequacy test” to assess whether the competent authorities of
the third countries concerned have adequate safeguards in place
to maintain the confidentiality of information received.
Free 190 pages e-book: 100 Job Descriptions in Risk and Compliance
The 8th Company Law Directive of the European
Union (European Sarbanes Oxley) from the Sarbanes Oxley Compliance
Professionals Association (SOXCPA)
Certified EU Sarbanes Oxley Expert (CEUSOE)
all-inclusive cost: $147
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A. The official presentations we use in our instructor-led classes
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