Fact sheet 5: The Impact Beyond Europe
The Impact Beyond Europe
While the EU audit legislation does not directly apply to entities outside of the EU, the rules will affect any EU-based subsidiary considered a public interest entity (PIE), regardless of where the parent company is headquartered. This fact sheet highlights key considerations for multi-national organisations and outlines the main criteria for determining whether your EU subsidiary is considered a PIE.
EU Audit Reform does not directly apply to entities outside of the EU, however certain EU-based subsidiaries of non-EU parents could be scoped into the requirements. The rules become effective from 17 June 2016, but multi-nationals should take steps now to understand if and how the legislation affects their EU subsidiaries.
The two key provisions which could have the most impact are mandatory firm rotation and restrictions around non-audit services.
Mandatory Firm Rotation
If a non-EU parent has EU-based subsidiaries, and any of these are public interest entities (PIEs) in their own right – then irrespective of size, they will have to rotate in line with the national law of the Member State where they are incorporated. As Member States have a certain degree of flexibility around rotation requirements it is entirely possible that EU PIEs within a multinational group will need to rotate at different times and according to different rules.
Restrictions on Non-Audit Services
Member firms of the statutory auditor’s network (other than the auditor of the EU PIE itself), can potentially provide services on the restricted list to a controlled undertaking of an EU PIE outside of the EU, but only if the statutory auditor can justify that the independence of their audit is unaffected.
Key questions addressed by this fact sheet include:
- How do I determine if my organization is considered a PIE?
- How are entities which are dual listed within and outside of the EU treated?
- How do the non-audit service restrictions apply to controlled undertakings on an EU PIE incorporated outside the EU?
This fact sheet applies to the EU baseline rules. The final regulatory environment will be impacted by how each EU Member State interprets the legislation and any derogations they choose to implement.