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Is the EU “Going Too Far”?

Examining the divide between the legislator within the EU and members of the financial market

Written by J. Gear

Paper category

Bachelor Thesis


Business Administration>Accounting




Bachelor Thesis: 2.2.1 The history of EU audit legislation9 It was not until the implementation of the 8th Council Directive 10 in 1984 that there was no legislation specifically aimed at auditing. Before that, the legislation was aimed at financial reporting. This legislation was first rooted in the Treaty Establishing the European Economic Community11 (Council of the European Communities, 1957), and then rooted in the 1961 European Community’s general plan to abolish restrictions on the establishment of freedom within the community. Economic Community, 1961), in the form of a directive of the First Committee12. The directive requires companies to prepare annual financial reports in order to provide investors with the necessary information for decision-making (Council of the European Communities, 1968). The first reference document specifically aimed at auditing was the "Fourth Council" Directive No. 13 of 1978. In addition to describing the required accounting methods in detail, the directive also requires auditing of financial statements. Article 51 stipulates: 1. (a) The company must have one or more persons authorized by national law to audit its annual accounts. (b) The person responsible for auditing the accounts must also verify the annual report and the annual accounts for the same fiscal year. The directive’s requirements for audits are not very specific, nor do they mention specific audit standards or methods that auditors should follow (Council of the European Communities, 1978). The Eighth Council Directive The Eighth Council Directive (84/253/EEC) in 1984 was the first legislation specifically targeting auditors who are responsible for statutory audits of accounting documents. The directive does not propose a method for performing audits, but instead focuses on the issue of who should be allowed to conduct audits (Council of the European Communities, 1984). Those who are permitted to engage in auditing business should have independence and good reputation, as well as high theoretical knowledge and professional capabilities. The high-level theoretical knowledge and professional abilities stipulated in Article 4 are guaranteed: Only after reaching the university entrance level can a natural person approve the statutory audit of the documents mentioned in Article 1 (1), and then complete the theoretical guidance course. Practice training and pass the university professional competency exam. The final exam level is organized or recognized by the state (Council of the European Communities, 1984). The directive requires "professional competence examination to ensure the level of theoretical knowledge in subjects related to statutory document audit and the ability to apply this knowledge in practice". It lists the subject areas that should be included in the examination. When approved by an audit firm, unlike individual auditors, most members of an administrative or management agency will be required to meet the same conditions. The third part covers professional integrity and independence, but at the same time defines minimum requirements and does not contain any specific guidance. Article 23 simply stipulates that auditors should conduct audits with professional ethics, and Article 24 stipulates that member states shall not allow auditors to conduct audits independently of national laws. In Section 4, the directive requires “Member States to ensure that the names and addresses of all natural persons and audit companies approved by them are subject to statutory audits” (Council of the European Communities, 1984). The legitimacy of EU interests So far, the reasons for legislative action have been the continuing goal of establishing freedom stipulated in the master plan and the provisions stipulated in the treaty establishing the EEC. In 1985, the European Commission, under the leadership of its then chairman Jacques Delors (Jacques Delors), published a white paper16 in which it proposed “eliminating all physical, technical, and tax-related barriers to free movement within the Community”. Target (EU, 2012). This article further elaborates on the existing goals of establishing freedom: the premise of unifying the market is that member states will reach agreement on removing obstacles, harmonizing rules, approaching legislative and tax structures, strengthening currency cooperation, and taking necessary side measures. Encourage cooperation between European companies (Commission of the European Communities, 1985). The timetable in the white paper allows the internal market to be completed in 1992 or 7 years. This document has an impact on the goals set out in the Single European Act of 1986, which is an amendment to an existing treaty. In order to achieve the goals of the white paper, the bill aims to expand the power of the community and to increase freedom between countries through a comprehensive legislative plan to create a single market (Council of the European Communities, 1986). Read Less