EU DRAFT RECOMMENDATION ON STATUTORY AUDITOR INDEPENDENCE

You may already be aware that shortly before Christmas, the European Commission published a draft Commission Recommendation to member States on the independence of the statutory auditor in the EU on its website.

The Commission worked closely with member States through the EU Committee on Auditing to produce the Recommendation, which aims to establish minimum standards which should apply in all Member States. It has released the Recommendation as a consultation draft so that a full range of individuals and organisations which rely on such information, including investors and other stakeholders, have a chance to read it and comment on it.

Whilst we have been closely involved in the development of the draft through the EU Committee on Auditing, we are keen that our final comments take account of wider views in the UK, particularly from the users of accounts. We would therefore find it extremely valuable to receive any views you may have about it so that we can send a co-ordinated UK response. Responses can also be made direct to the Commission (to the address in the draft), but we would be grateful to have copies of any comments sent direct so that, again, these views can be reflected in our main response.

Auditor independence is seen as fundamental to the credibility of statutory financial information published by companies and hence to the proper operation of capital markets. The Recommendation sets out the principles which a statutory auditor should observe to ensure the independence of the audit and provides guidance as to how those principles should be applied in particular circumstances. Although not legally binding on member States, it is likely to be highly influential in developing more closely aligned rules and guidance across the EU.

It is an existing requirement of UK company law that the accountancy bodies recognised for the purposes of supervising the work of auditors must have adequate rules and practices to ensure the professional integrity and independence of the statutory auditor. When the independent Ethics Standards Board is established as part of the new Framework of Regulation for the accountancy profession, the bodies' rules on auditor independence will be subject to the scrutiny of the ESB and to an agenda set by the ESB. We would expect the ESB to pay close regard to this EU Recommendation.

If you have difficulty accessing the draft Recommendation on the Commission website, please let us know as it may be possible to send a hard copy. The draft can be found at:

http://europa.eu.int/comm/internal_market/en/company/audit/news/indintro.htm

Comments should be addressed to:

Mr William Ellis
Company Law Directorate 2b
Department of Trade and Industry
Rm 4100, 1 Victoria Street
LONDON
SW1H 0ET

or, if sent by e-mail
william.ellis@dti.gsi.gov.uk

The Commission has asked for comments by 2 March 2001, so it would be helpful to have any contributions by 23 February if possible.

Yours sincerely

H C HARDING
Assistant Director
Audit and Accountancy

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