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European Union -
8th Company Law Directive
DIRECTIVE
2006/43/EC
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.
Note
This web site has been prepared as a general guide and does not
constitute or offer legal, financial or other advice upon which you
may act or rely. Specific professional advice should be taken in
respect of any individual matter.
George Lekatis
General Manager and Chief Compliance Consultant
Compliance LLC
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