The European Commission has launched on June 22nd, a public consultation to determine whether International Standards on Auditing (ISAs) should be adopted in the EU. This public consultation follows the results of an independent study published on the same day, which show that the benefits of adopting such standards would outweigh the costs. The Commission invites interested parties to respond to the consultation by September 15th 2009.

The Commission considers this to be an appropriate time to examine whether an adoption of the ISAs at EU level would be beneficial to the EU. The International Financial Reporting Standards (IFRS) were adopted at EU level in 2005 with a view to improving transparency and comparability of the financial statements of listed companies, as it was put forward by Commission's report on Regulation's application. The Commission would adopt the ISAs with a view to enhancing confidence in the financial statements, possibly for the audits of all limited companies in the EU.

Investors rely on external statutory auditors to assess whether the financial statements of entities in which they have invested give a true and fair view. Auditors assess the risks of material misstatements in the financial statements and ensure that any such misstatements are corrected, or otherwise reported.

The quality of an audit depends, to a large extent, on the professional standards that are applied by the auditor. For instance, auditing standards will guide the auditor on how to identify and address transactions with parties related to management or fraud risks in companies. The International Auditing and Assurance Standards Board (IAASB), a board of the International Federation of Accountants, has recently completed a major revision of the ISAs under the "Clarity" project.

A study undertaken by the University of Duisburg-Essen, also published on June 22nd, indicates that an adoption of the ISAs in the EU would result in quantitative and qualitative benefits for companies, investors and regulators, stemming from high quality and harmonised audits in the EU. The High Level Group of Mr Stoiber, on reducing the administrative burden for EU citizens, also calls for audits to be proportionate to the size of the audited entities in order to avoid undue regulatory burden on smaller entities.

The consultation document on ISAs considers these aspects and also whether the ISAs have sufficient international acceptance. Interested parties may submit their point of view by September 15th 2009.

Internal Market and Services Commissioner Charlie McCreevy stressed that the “use of international standards, accepted worldwide, for statutory audits in the EU is an opportunity to enhance the quality and credibility of the financial statements of EU companies, to the benefit of investors and citizens. Some say ISAs may not have sufficient international acceptance, while others fear that they may not be fit for the audit of smaller entities. I want to hear more about this and I encourage all those who have a view or experience to share it with us. Hopefully, respondents will find useful elements in the conclusions of a study that we also publish today."