Commissioner for the Internal Market Michel Barnier said that the exchange of audit working papers is an important step in achieving the ultimate objective of equivalence of PCAOB and EU audit oversight systems. Companies have gone global and are listed on capital markets in different continents. Their auditors have followed them. Since the auditing of financial statements has moved beyond national borders, noted Commissioner Barnier, global cooperation and coordination is needed to ensure that high quality audits are carried out world-wide. One form of cooperation is the exchange of audit working papers or other documents held by auditors and audit firms.
EU members may allow the PCAOB access to audit working papers or other documents held by EU auditors or audit firms only for the exercise of the functions of public oversight, quality assurance, investigations and penalties over auditors and audit firms. Statutory audit means an audit of annual or consolidated accounts of listed companies, banks and insurance companies as required by EU law. Further, bilateral working arrangements between EU audit oversight authorities and the PCAOB have to be agreed upon before any transfer of audit working papers or other documents held by EU statutory auditors or audit firms is made to the PCAOB.
EU authorities must ensure that the bilateral working arrangements which allow for the transfer of audit working papers or other documents contain appropriate safeguards regarding the protection of personal data as well as the protection of professional secrets and sensitive commercial information mentioned in the transferred documents. This protection covers the companies whose financial statements are audited as well as the auditors of those companies. The persons employed or formerly employed by the PCAOB that receive the information must be subject to obligations of professional secrecy.
It is the individual responsibility of each EU Member State to define how an exchange of audit working papers or other documents can be carried out. A non-exhaustive list of possible ways to exchange audit working papers would be physical or electronic transmission of documents; access to documents during joint inspections of EU audit firms carried out by the EU audit regulator together with the PCAOB; and access to documents during observation of the work of EU audit regulators by the PCAOB
Former Commissioner Charlie McCreevy earlier noted that the EU's overall goal has always been to move towards full reliance on the audit inspections of the PCAOB and other public oversight bodies in non-EU countries. In practice, this would mean that audit firms from these countries would no longer have to be inspected by EU public oversight bodies since the EU could rely on the audit inspections that were carried out by their counterparts in these countries. In return, EU oversight bodies would expect the same treatment for EU audit firms. Former PCAOB Chair Mark Olson has presciently stated that there will be a transition period to full reliance during which the Board and its EU counterparts will agree on specific procedures through the execution of bilateral agreements.