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Certified
Sarbanes Oxley Expert
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Distance
Learning and Online Certification Program |
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Certified
EU Sarbanes Oxley Expert -
Distance
Learning and Online Certification Program |
The 8th Company Law
Directive
of the European Union (European Sarbanes Oxley) from
the
Sarbanes Oxley
Compliance Professionals Association (SOXCPA)
the largest
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.
A. The need for better corporate governance
and for more effective audits?
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.
E.
A post Sarbanes-Oxley regulatory retaliation?
F. The
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 (you will find more at
www.savings-tax-directive.com). 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 Bolkestein
said:
"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
He continued:
"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 countries.
In substance our European approach to the regulation of the audit
profession and that of the PCAOB are now quite convergent.
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 nonaudit
services."
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.
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 Decision.
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 certain criteria.
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 third country.
Cooperation
with third country competent authorities
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 by them.
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.
For 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 authority.
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
Management
THE 8TH COMPANY LAW DIRECTIVE IN AN EASY TO READ FORMAT
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The 8th Company Law Directive of the European
Union (European Sarbanes Oxley) from the Sarbanes Oxley Compliance
Professionals Association (SOXCPA)
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