March 2013

Audit Market Reform - While the negotiations are still pending at the Council, ecoDa keeps on repeating its position stated by Per Lekvall at a previous Eurofinuse Conference held in Brussels in March 2013.

Per Lekvall made it clear that whilst ecoDa is certainly supportive to the aim to strengthen the Audit Committees’ work, ecoDa is critical to the “one-size-fits-all” approach applied by the Commission when it comes to defining and describing the role of the Audit Committee in the governance process. The great diversity of Corporate Governance systems and practices throughout the EU should be seen as strength to be constructively made use of, not as a problem to be eliminated as far as possible. ecoDa believes that EU-level regulation in this field should be defined in a way that leaves adequate room for national implementation to be adapted to the specific circumstances of each jurisdiction.

Per insisted on the fact that ecoDa doesn’t find this approach to be applied in the proposed Regulation. The proposal is in many cases overly detailed, far-reaching and prescriptive. It uses a language and terminology that seems to give the Audit Committee a role which does not seem entirely consistent with existing governance legislation and practice in all parts in Europe.

The Commission consistently refers to the Audit Committee as if it were an integral part of the governance structure of all companies. The Commission consistently refers to the Audit Committee as if it were a separate governance body, more or less independent of the Board. It is even suggested that some members of the Audit Committee should be appointed by the General Meeting.

It may lead to a situation where the Audit Committee begins to “live its own life” more or less as a new governance body in its own right – which in turn would probably require the Company Laws to be re-written in several member states of the EU. And even more serious it may blur the accountability of the Board – if some of its members – and in particular the Chair – is to be appointed by the Annual General Meeting. The language should reflect the fact that it is the Board that has the overall responsibility for the company’s interaction with its statutory auditor – whether parts of this responsibility are delegated to an Audit Committee or not.

Neither the Board as a whole nor its Audit Committee should be given tasks involving the oversight and monitoring the Auditor´s work. And the idea that the Audit Committee (not the Board, interestingly enough) should be able to go to court to have an allegedly unsuitable Auditor dismissed seems to me very far-fetched and potentially dangerous. The right to appoint and dismiss the Statutory Auditor should rest solely with the shareholder majority at the General Meeting.