European Audit Reform

How It Could Affect U.S. Companies

Allan B. Afterman, PhD, CPA

In April 2014, European Union (EU) legislation was adopted to reform the European statutory audit market. In this context, a statutory audit is a legally required audit of an entity's financial statements conducted by an external (statutory) auditor. The legislation, which comprises a regulation and a directive and which applies mainly to the approximately 30,000 public-interest entities (PIE) within the EU, will generally become effective in June 2016. PIEs comprise 1) all entities governed by the law of one of the 28 EU member states (and of Norway, Lichtenstein, and Iceland, all of which are members of the European Economic Area) that are listed on a regulated market, 2) all EU credit institutions, even those that are not listed, 3) all EU insurance companies, even if they are not listed, and 4) entities designated as such by a member state at its option. While the EU audit reform measures do not directly apply to U.S. companies or their U.S. auditors, they can have an impact on U.S. multinationals that have EU-based subsidiaries that qualify as PIEs.