Proposals for the regulation of statutory audit in the European Union: A commentary
| DOI | https://doi.org/10.1108/eb025036 |
| Date | 01 February 2000 |
| Published date | 01 February 2000 |
| Pages | 118-130 |
| Author | Ian P. Dewing,Peter O. Russell |
| Subject Matter | Accounting & finance |
Journal
of
Financial Regulation
and
Compliance
Volume
8
Number
2
Proposals for the regulation of statutory
audit in the European Union: A commentary
Ian P. Dewing and Peter O. Russell
Received: 15th December, 1999
School of Management, University of East Anglia, Norwich NR4 7TJ; tel: +
44
(0) 1603 456 161;
fax: +44 (0) 1603 593 343
Ian P. Dewing and Peter O. Russell are
lecturers in Accounting and Finance at the
School of Management, University of East
Anglia, Norwich, UK.
ABSTRACT
For more than two
decades the
framework gov-
erning the statutory audit of
companies
within
the European Union (EU) has been the subject
of
debate
and reform. Significant progress has
been made with the publication of
the
European
Commission (EC) Green Paper (1996), and
the subsequent EC Conference (1997) and EC
Communication (1998). The objective of this
paper is to provide a commentary on the recent
reviews of the
regulatory
framework for statu-
tory audit at EU level in the context of
ongoing
developments.
The paper concludes that the regulatory
framework for statutory audit in the EU
is
far
from complete and much remains to be done.
The way forward, at least in the short term,
relies on the accountancy and auditing profes-
sion taking the lead in finding solutions. The
different nature of accounting, financial and
legal traditions within the EU, and the need to
search
for
consensus,
however, makes it difficult
to predict when the EC will be in a position to
complete an internal market for audit services
within the EU.
A
significant
factor worthy of further
consid-
eration is that developments at the international
level are in danger of
outpacing
the EU's abil-
ity to respond. Because of the size, power and
adaptability of US financial markets, it is pos-
sible that US Generally Accepted Accounting
Practices (US GAAP) and US Generally
Accepted Auditing
Practices
(US GAAS) may
become the dc facto global
standards
for listed
companies.
INTRODUCTION
For more than two decades the framework
governing the statutory audit of companies
within the European Union (EU) has been
the subject of debate and reform. The Eur-
opean Economic Community's (EEC)
Fourth Directive1 on company law estab-
lished that all companies covered by the
Directive must have their financial state-
ments audited by a qualified professional.
The auditor must certify inter alia whether
or not the financial statements show a 'true
and fair view'.2 These requirements were
extended to companies preparing consoli-
dated financial statements following the
Seventh Directive.3 The Eighth Directive4
specified conditions as to the approval of
persons qualified to undertake statutory
audits.
Despite the issuance of these Directives,
ongoing developments such as the creation
of the European Single Market,5 and con-
cerns,
both at a European level and interna-
tionally, about an increasing 'audit
expectations gap',6 led the European
Journal of Financial Regulation
and Compliance, Vol 8, No. 2,
2000.
pp. 118-130
© Henry Stewart Publications,
1358-1988
Page
118
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