Companies (Statutory Audits) Act 2018

(2) Subject to subsection (4), if there is an appeal from the High Court from a confirmation referred to in subsection (1)(a), or a decision referred to in subsection (1)(b), the Supervisory Authority shall as soon as may be, as it considers appropriate, publish particulars on its website of the status or outcome of the appeal.

(3) The Supervisory Authority shall publish the particulars, comprising a public notice of relevant sanction imposed, on an anonymous basis on its website in any one or more of the following circumstances:

(a) the Supervisory Authority, following an assessment of the proportionality of the publication of those particulars in accordance with subsection (1) in so far as personal data are concerned, is of the opinion that, in relation to the relevant sanction imposed on a specified person who is an individual, such publication would be disproportionate;

(b) the Supervisory Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would jeopardise the stability of financial markets or an ongoing criminal investigation;

(c) the Supervisory Authority is of the opinion that the publication of those particulars in accordance with subsection (1) would cause disproportionate damage to the specified person.

(4) Subsection (2) shall not apply in any case where subsection (3) applies.

(5) The Supervisory Authority shall ensure that particulars published on its website in accordance with subsection (1) or (2) remain on its website for at least 5 years.

Limitations on imposing monetary sanctions on specified person

1509. (1) If the Supervisory Authority decides to impose a monetary sanction on a specified person, the Supervisory Authority shall not impose an amount—

(a) that would be likely to cause the specified person to cease business, or

(b) that would, if the specified person is an individual, be likely to cause the person to be adjudicated bankrupt.

(2) If the conduct engaged in by the specified person has given rise (whether in whole or in part) to 2 or more contraventions concerned, the Supervisory Authority shall not impose more than one monetary sanction on the person in respect of the same conduct.

Specified person not to be liable to be penalised twice for same relevant contravention

1510. (1) If the Supervisory Authority imposes a monetary sanction on a specified person and the conduct engaged in by the person that has given rise (whether in whole or in part) to the contravention concerned is an offence under the law of the State, the person shall not be liable to be prosecuted or punished for the offence under that law.

(2) The Supervisory Authority shall not impose a monetary sanction on a specified person if—

(a) the person has been charged with having committed an offence under a law of the State and has either been found guilty or not guilty of having committed the offence, and

(b) the offence involves the conduct engaged in by the person that has given rise (whether in whole or in part) to the contravention concerned.

Appeals to and orders of High Court, including orders confirming relevant decisions of Supervisory Authority

1511. (1) In an appeal under section 1505, the High Court may consider any evidence adduced or argument made, whether or not adduced or made to the Supervisory Authority or recognised accountancy body concerned.

(2) On the hearing of such an appeal, the High Court may make any order or give any direction as it thinks fit, including an order—

(a) confirming the decision under appeal, or

(b) modifying or annulling the decision.

(3) A relevant decision does not take effect until that decision is confirmed by the High Court either—

(a) on appeal under section 1505, or

(b) on application by the Supervisory Authority under subsection (4).

(4) On application by motion on notice by the Supervisory Authority for an order confirming a relevant decision, the High Court may make an order confirming the decision or may refuse to make such an order.

Chapter 10

Appointment of statutory auditors or audit firms

Prohibition of contractual clauses restricting choice of auditors

1512. (1) Section 380(6) shall, with any necessary modifications, apply to an audited undertaking which is not a company and to which this Part applies as that section applies to an audited undertaking which is a company and to which this Part applies.

(2) An audited undertaking that is a public-interest entity shall directly and without delay report to the Supervisory Authority any contractual clause referred to in section 380(6) that purports to affect it and the circumstances which gave rise to that clause.

(3) The Supervisory Authority, on receipt of a report under subsection (2), may share the report with—

(a) the Director,

(b) the Revenue Commissioners,

(c) the Workplace Relations Commission,

(d) the Central Bank, or

(e) any body responsible for the regulation of the public-interest entity.

Selection procedures for statutory auditors or audit firms by public-interest entities

1513. (1) Subject to subsection (2), the following selection procedures apply, for financial years commencing on or after 17 June 2016, to the appointment of a statutory auditor or audit firm to a public-interest entity:

(a) the audit committee shall prepare a recommendation for the directors of the entity by carrying out the selection procedure specified in Article 16(3) of Regulation (EU) No 537/2014;

(b) the audit committee shall submit a recommendation to the directors of the entity for the appointment of statutory auditors or audit firms;

(c) the recommendation—

(i) shall be justified and contain at least 2 choices for the audit engagement and shall express a duly justified preference for one of them, and

(ii) shall state (if such be the case) that the recommendation is free from influence by a third party and that, on and from 17 June 2017, no clause of the kind referred to in section 380(6) has been imposed upon it;

(d) the proposal by the directors to the general meeting of shareholders or members of the entity for the appointment of statutory auditors or audit firms—

(i) shall include the recommendation referred to in paragraph (b) and the preference referred to in paragraph (c)(i),

(ii) if it departs from the preference of the audit committee, shall justify the reasons for not following the recommendation of the audit committee, and

(iii) shall state if the statutory auditor or audit firm recommended by the directors participated in the selection procedure referred to in subsection (2)(a).

(2) Subsection (1) shall not apply if—

(a) a selection procedure in accordance with Article 16(3) of Regulation (EU) No 537/2014 has been carried out in respect of the appointment of the statutory auditor or audit firm in relation to one or more of the preceding 9 financial years, and

(b) the statutory auditor or audit firm appointed by the public-interest entity was appointed for the previous financial year.

(3) Where the public-interest entity is exempt from the requirement for an audit committee under section 1551, this section applies to the directors of the public-interest entity.

(4) Where a public-interest entity relies on the provisions of section 382, 384 or 385, the public-interest entity shall, as soon as is practicable, inform the Supervisory Authority of that fact.

(5) The appointment of an auditor or audit firm shall be invalid if the appointment contravenes a provision of this section.

(6) (a) Subject to paragraph (b), a public-interest entity shall keep records demonstrating that the selection procedures referred to in subsection (1) have been carried out.

(b) The public-interest entity shall keep those records for at least 6 years from the date on which the selection procedures were completed.

(7) A person who contravenes subsection (6)(a) or (b) shall be guilty of a category 4 offence.

Appointment of statutory auditors or audit firms by public-interest entities - informing the Supervisory Authority

1514. (1) Subject to subsection (2)—

(a) where a statutory auditor or audit firm is first appointed by a public-interest entity on or after 17 June 2016, the statutory auditor or audit firm shall inform the Supervisory Authority within one month after the date of such appointment that the statutory auditor or audit firm has been appointed to hold office, and

(b) where a statutory auditor or audit firm which has complied with paragraph (a) is subsequently appointed by the same or a different public-interest entity, the statutory auditor or audit firm shall inform the Supervisory Authority within one month after the date of such appointment that the statutory auditor or audit firm has been appointed to hold office only if, immediately before the time of such appointment, the statutory auditor or audit firm held no such office with any public-interest entity.

(2) The information shall be submitted in such form and manner as the Supervisory Authority specifies and may be used by the Supervisory Authority in the performance of its functions.

(3) A person who contravenes subsection (1) shall be guilty of a category 3 offence.

Removal of statutory auditors or audit firms by public-interest entities - supplementary provisions

1515. (1) In the case of a statutory audit of a public-interest entity—

(a) shareholders representing 5 per cent or more of the voting rights or of the share capital, or

(b) the Supervisory Authority,

may bring a claim before the High Court for the removal of the statutory auditor or audit firm subject to there being good and substantial grounds for bringing such a claim before the Court.

(2) The grounds for bringing the claim before the High Court shall relate to—

(a) the conduct of the auditor or audit firm with regard to the performance of his or her duties as auditor of the public-interest entity or otherwise, or

(b) the petitioner’s opinion that it is in the best interests of the public-interest entity to do so.

(3) For the purposes of subsection (2)—

(a) diverging opinions on accounting treatments or audit procedures cannot constitute the basis for the passing of any resolution for the purposes of that subsection, and

(b) ‘best interests of the public-interest entity’ shall not include any illegal or improper motive with regard to avoiding disclosures or detection of any contravention by the entity of this Act.

Directors’ report to include date of last appointment of statutory auditor or audit firm

1516. (1) The directors’ report shall contain details of the date of appointment of the public-interest entity’s statutory auditor or audit firm.

(2) Where a public-interest entity has sought an extension from the Supervisory Authority under section 1548, pursuant to Article 17(6) of Regulation (EU) No 537/2014, the directors’ report shall also contain details of the extension granted.

(3) In this section, ‘directors’ report’ means the directors’ report required by section 325.

Chapter 11

Confidentiality and professional secrecy

Rules of confidentiality to apply

1517. (1) The rules of confidentiality and secrecy of a recognised accountancy body (of which the statutory auditor or audit firm concerned is a member) shall apply with respect to information and documents to which a statutory auditor or audit firm has access when carrying out a statutory audit.

(2) The statutory auditor or audit firm, as the case may be, shall comply with those rules of confidentiality and secrecy.

(3) In the case of an audit firm registered in accordance with section 1465, the rules of confidentiality and secrecy of the recognised accountancy body of which the key audit partner who carries out the statutory audit on behalf of the audit firm is a member shall apply with respect to information and documents to which the audit firm (or a statutory auditor on behalf of the firm) has access when carrying out a statutory audit.

Supplemental provisions in relation to section 1517

1518. (1) Section 1517 shall continue to apply with respect to the carrying out of a statutory audit notwithstanding—

(a) that the statutory auditor or audit firm referred to in that section has ceased to be engaged in that audit, or

(b) that the auditor or audit firm referred to in that section ceases to be—

(i) a statutory auditor or audit firm, or

(ii) an auditor or audit firm.

(2) Accordingly, in such a case—

(a) the statutory auditor or, as the case may be, audit firm, or

(b) the former such auditor or, as the case may be, audit firm,

shall continue to comply with the rules of confidentiality and secrecy concerned.

Saving

1519. (1) Nothing in section 1517 or 1518 shall operate to prevent the recognised accountancy body from complying with its obligations under the relevant provisions.

(2) Nothing in section 1517 or 1518 shall operate to impede the enforcement of the relevant provisions.

Rules of confidentiality in relation to entities in third countries

1520. (1) Where a statutory auditor or audit firm carries out a statutory audit of an undertaking which is part of a group whose holding undertaking is situated in a third country, the confidentiality and professional secrecy rules referred to in section 1517(1) shall not impede the transfer by the statutory auditor or the audit firm of relevant documentation concerning the audit work performed to the group auditor situated in a third country if such documentation is necessary for the performance of the audit of consolidated financial statements of the holding undertaking.

(2) A statutory auditor or an audit firm that carries out the statutory audit of an undertaking which has issued securities in a third country, or which forms part of a group issuing statutory consolidated financial statements in a third country, may only transfer the audit working papers or other documents relating to the audit of that undertaking that he or she holds to the competent authorities in the relevant third countries under the conditions set out in Chapter 19.

(3) The transfer of information to the group auditor situated in a third country shall comply with the Data Protection Acts 1988 to 2018 and Regulation (EU) 2016/679.

Incoming statutory auditor or audit firm to be afforded access to information

1521. Where a statutory auditor or audit firm is replaced by another statutory auditor or audit firm, the former statutory auditor or audit firm shall provide access to all relevant information concerning the audited undertaking and the most recent audit of that undertaking to the incoming statutory auditor or audit firm.

Access by recognised accountancy body to audit documents

1522. (1) Where it considers it reasonably necessary to do so for the purpose of performing a particular function under the relevant provisions, a recognised accountancy body may inspect and make copies of all relevant documents in the possession or control of a statutory auditor or audit firm; for that purpose, it may, by notice in writing served on a statutory auditor or audit firm, require the auditor or firm either (as shall be specified) to—

(a) furnish to it specified documents, or

(b) permit it to have access, under specified circumstances, to all relevant documents in the possession or control of the auditor or firm,

within a specified period.

(2) Without prejudice to the generality of subsection (1), the powers under that subsection are exercisable in relation to a statutory auditor or audit firm where a complaint is made to a recognised accountancy body that the statutory auditor or audit firm has contravened a requirement of the relevant provisions.

(3) Where the powers under subsection (1) are exercisable, the following additional power may be exercised by a recognised accountancy body if it considers that the exercise of it is reasonably necessary to enable it to clarify any matter arising from its inspection of the documents concerned, namely a power to require the statutory auditor or a member of the statutory audit firm to—

(a) attend before it, and

(b) explain any entry in the documents concerned and otherwise give assistance to it in clarifying the matter concerned.

(4) In this section, ‘specified’ means specified in the notice concerned.

(5) Without prejudice to subsection (6), if a person fails, without reasonable excuse, to comply with a requirement under subsection (1) or (3), the person shall be guilty of a category 3 offence.

(6) Where a person fails to comply with a requirement under subsection (1) or (3), the recognised accountancy body concerned may apply to the High Court for an order compelling compliance by the person with the requirement, and, on the hearing of such application, the Court may make such an order or such other order as it thinks just.

Access by Supervisory Authority to information and documents held by recognised accountancy bodies or relevant persons

1523. (1) Where it considers it reasonably necessary to do so for the purposes of performing a particular function under the relevant provisions, the Supervisory Authority may request information and inspect and make copies of all relevant documents in the possession or control of a recognised accountancy body or a relevant person; for that purpose, it may, by notice in writing served on the recognised accountancy body or relevant person, require the recognised accountancy body or relevant person either (as shall be specified) to—

(a) furnish to it specified documents or information, or

(b) permit it to have access, under specified circumstances, to all relevant documents in the possession or control of the recognised accountancy body or relevant person,

within a specified period.

(2) In this section, ‘relevant person’ means—

(a) a member of a recognised accountancy body,

(b) a client or former client of the member,

(c) if the client or former client is a body corporate, a person who is or was an officer, employee or agent of the client or former client, or

(d) any person whom the Supervisory Authority reasonably believes has information or documents in relation to the particular function other than information or documents the disclosure of which is prohibited or restricted by law.

(3) Without prejudice to the generality of subsection (1), the powers under that subsection are exercisable in relation to a recognised accountancy body or relevant person where a complaint is made to the Supervisory Authority that the recognised accountancy body or relevant person has contravened a requirement of the relevant provisions.

(4) Where the powers under subsection (1) are exercisable, the following additional power may be exercised by the Supervisory Authority if it considers that the exercise of it is reasonably necessary to enable it to clarify any matter arising from its inspection of the information or documents concerned, namely a power to require an officer of the recognised accountancy body or relevant person to—

(a) attend before it, and

(b) explain any entry in the information or documents concerned and otherwise give assistance to it in clarifying the matter concerned.

(5) In this section, ‘specified’ means specified in the notice concerned.

(6) If a person fails, without reasonable excuse, to comply with a requirement under subsection (1) or (4), the person shall be guilty of a category 3 offence.

(7) Nothing in this section derogates from the powers exercisable by the Supervisory Authority in the circumstances, and under the conditions, specified in section 933 or 934.

Professional privilege

1524. Nothing in this Chapter compels the disclosure by any person of any information that the person would be entitled to refuse to produce on the grounds of legal professional privilege.

No liability for acts done in compliance with obligations imposed by relevant provisions

1525. (1) No professional or legal duty to which a statutory auditor or audit firm is subject by virtue of his or her appointment as a statutory auditor or audit firm shall be regarded as contravened by reason of compliance with the obligations imposed by the relevant provisions.

(2) No liability to the undertaking audited or being audited, its shareholders, creditors, or other interested parties shall attach to the statutory auditor or audit firm by reason of such compliance.

(3) For the avoidance of doubt, nothing in this section affects the liability of a statutory auditor or audit firm for negligence or breach of duty in the conduct of a statutory audit by him or her.

Chapter 12

Auditing standards and audit reporting

Auditing standards to be applied

1526. (1) The Supervisory Authority shall adopt the auditing standards to be applied and statutory auditors and audit firms shall carry out statutory audits in accordance with those standards.

(2) On and from the adoption of international auditing standards, statutory auditors and audit firms shall carry out statutory audits in accordance with those standards.

(3) The reference in subsection (2) to the adoption of international auditing standards is a reference to the adoption by the Commission, in accordance with the procedure referred to in Article 26 of the Audit Directive, of international auditing standards.

(4) The Supervisory Authority may prescribe by regulations audit procedures or requirements, in addition to the international auditing standards adopted by the Commission under Article 26 of the Directive, only—

(a) if those audit procedures or requirements are necessary in order to give effect to legal requirements in the State relating to the scope of statutory audits, or

(b) to the extent necessary to add to the credibility and quality of financial statements.

(5) The Supervisory Authority shall communicate the audit procedures or requirements referred to in subsection (4) to the Commission at least 3 months before their entry into force or, in the case of requirements already existing at the time of adoption of an international auditing standard, at the latest within 3 months of the adoption of the relevant international auditing standard.

(6) In the case of the statutory audit of small companies, the Supervisory Authority may provide that the application of the auditing standards referred to in subsection (1) is to be proportionate to the scale and complexity of the activities of such companies and may take the measures necessary in order to ensure the proportionate application of the auditing standards to the statutory audits of small companies.

(7) In this section, ‘standards’ include standards on professional ethics and internal quality control in addition to standards on auditing.

Audit of group accounts - responsibility of group auditor

1527. (1) Where a statutory audit of the group financial statements of a group is carried out—

(a) in relation to the group financial statements, the group auditor shall bear the full responsibility for the statutory auditors’ report, and

(b) where the holding undertaking is a public-interest entity, the group auditor shall bear the full responsibility for ensuring that the requirements of Articles 10 and 11 of Regulation (EU) No 537/2014 are met in relation to the audit carried out on that public-interest entity.

(2) The group auditor shall—

(a) evaluate the audit work carried out by any auditors for the purpose of the group audit, and

(b) document the nature, timing and extent of the work carried out by those auditors, including the group auditor’s review of the relevant parts of audit documentation.

(3) For the purposes of the group audit, auditors may be one or more of the following:

(a) statutory auditors;

(b) statutory audit firms;

(c) Member State auditors;

(d) Member State audit firms;

(e) third-country auditors;

(f) third-country audit entities.

(4) The group auditor shall carry out a review, and maintain documentation of such review, of the work of whoever referred to in subsection (3) performed audit work for the purposes of the group audit.

(5) The documentation referred to in subsections (2)(b) and (4) to be retained by the group auditor shall be such as enables the Supervisory Authority, or the recognised accountancy body where applicable, to conduct a quality assurance inspection or review, as the case may be, under Chapter 7.

(6) The group auditor shall request the agreement of the auditors concerned referred to in subsection (3)(a) to (f) to transfer relevant documentation during the carrying out of the audit of group financial statements as a condition of the reliance by the group auditor on the work of such auditors.

(7) (a) Where the group auditor is unable to secure an agreement referred to in subsection (6), he or she shall take appropriate measures in order to form an audit opinion and inform the relevant Supervisory Authority or the recognised accountancy body where applicable.

(b) Such measures shall, as appropriate, include carrying out additional statutory audit work, either directly or by outsourcing the additional statutory audit work, in the relevant subsidiary.

(8) (a) The group auditor who is subject to a quality assurance inspection or review or an investigation concerning the statutory audit of the group financial statements of a group shall, when requested, make available to the Supervisory Authority or the recognised accountancy body where applicable the relevant documentation he or she retains concerning the audit work performed by the auditors concerned referred to in subsection (3)(a) to (f) for the purpose of the group audit, including any working papers relevant to the group audit.

(b) The Supervisory Authority may request additional documentation on the audit work performed by a statutory auditor or audit firm for the purpose of the group audit from the competent authorities in other Member States where applicable pursuant to Chapter 17.

Further responsibility of group auditor

1528. (1) Subject to subsection (2), the Supervisory Authority may request additional documentation on the audit work performed by any third-country auditor or third-country audit entity on a holding undertaking or on a subsidiary undertaking of a group from the relevant competent authorities from third countries through the working arrangements referred to in section 1568(1)(c) or 1569(c).

(2) Where—

(a) a statutory audit of the group financial statements of a group is carried out, and

(b) a holding undertaking or subsidiary undertaking of the group is audited by one or more third-country auditors or third-country audit entities that have no working arrangements as referred to in section 1568(1)(c) or 1569(c),

the group auditor is responsible for ensuring proper delivery, when requested, to the Supervisory Authority of the additional documentation of the audit work performed by those auditors or audit entities, including the audit working papers relevant to the group audit.

(3) To ensure such delivery, the group auditor shall retain a copy of such audit documentation, or alternatively—

(a) agree, with one or more third-country auditors or third-country audit entities concerned, arrangements for the group auditor’s proper and unrestricted access, upon request, to the documentation, or

(b) take any other appropriate action.

(4) Where audit working papers cannot, for legal or other reasons, be passed from a third country to the group auditor, the documentation retained by the group auditor shall include—

(a) evidence that he or she has undertaken the appropriate procedures in order to gain access to the audit documentation, and

(b) in the case of an impediment other than a legal one arising from legislation of the third country or countries concerned, evidence supporting the existence of such an impediment.

Additional report to audit committee

1529. (1) Where a public-interest entity is exempt from the requirement to have an audit committee, as provided for under this Part, the additional report to the audit committee shall be submitted to the directors of the public-interest entity.

(2) Subject to subsection (1), the audit committee of a public-interest entity shall submit the additional report to the audit committee to the directors of the public-interest entity.

(3) The Supervisory Authority may set out additional requirements to those listed in points (a) to (p) of Article 11(2) of Regulation (EU) No 537/2014 in relation to the content of the additional report to the audit committee, or directors, as applicable, only where this provides further information to the audit committee on the audit work undertaken.

(4) The audit committee (or, if there is no audit committee, the directors of the public-interest entity) shall disclose the additional report to any of the following persons upon request where the information is required in order for the person to perform the person’s functions:

(a) the Supervisory Authority;

(b) the Director;

(c) the Revenue Commissioners;

(d) the Workplace Relations Commission;

(e) the Central Bank;

(f) any body responsible for the regulation of the public-interest entity.

(5) A disclosure by the audit committee (or, if there is no audit committee, the directors of the public-interest entity) in accordance with subsection (4) shall not be treated, for any purpose, as a breach of any restriction of disclosure by that committee (or, as appropriate, such directors) imposed by or under any other enactment, rule of law or otherwise.

Auditors’ reporting obligations under Article 12 of Regulation (EU) No 537/2014

1530. (1) Reports by statutory auditors or audit firms referred to in Article 12 of Regulation (EU) No 537/2014 shall be submitted to the Supervisory Authority unless they are already required to be submitted to the Central Bank under—

(a) Regulation 134(1) of, or Schedule 16 to, the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011),

(b) Regulation 52 of the European Union (Capital Requirements) Regulations 2014 (S.I. No. 158 of 2014), or

(c) Regulation 78 of the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485 of 2015).

(2) The obligation imposed on a person by subsection (1) to disclose information that he or she has to the Supervisory Authority is in addition to, and not in substitution for, any other obligation that the person has to disclose information to the Supervisory Authority or any other person, but that subsection shall not require the first-mentioned person to disclose that information to the Supervisory Authority more than once.

(3) (a) The Central Bank may, by notice in writing given to a statutory auditor or audit firm, require the auditor or firm to give it, within the period specified in the notice, additional information if such information is necessary for effective financial market supervision as provided for in the law of the State.

(b) The statutory auditor or audit firm the subject of a notice under paragraph (a) shall comply with the notice.

Chapter 13

Record keeping

Record keeping

1531. (1) Statutory auditors and audit firms shall keep the documents and information referred to in Article 15 of Regulation (EU) No 537/2014 for a period of at least 6 years.

(2) Where a transaction, act or operation is the subject of an investigation, inquiry, claim, assessment, appeal or proceeding which has already commenced within that 6 year period, then the relevant documents and information shall be retained until such time as the investigation, inquiry, claim, assessment, appeal or proceeding has been concluded or for a period of at least 6 years, whichever is the longer.

Chapter 14

Objectivity

Future viability

1532. Without prejudice to the reporting requirements referred to in sections 336, 337 and 391 and, where applicable, Articles 10 and 11 of Regulation (EU) No 537/2014, the scope of the statutory audit shall not include assurance on the future viability of the audited undertaking or on the efficiency or effectiveness with which the directors of the undertaking have conducted or will conduct the affairs of the undertaking.

Chapter 15

Independence

Requirement for independence - general

1533. (1) During the period in which a statutory audit is being carried out—

(a) the statutory auditor or audit firm, as the case may be,

(b) in the latter case, any statutory auditor of the statutory audit firm, and

(c) any individual in a position to directly or indirectly influence the outcome of the statutory audit,

shall be independent of, and not involved in the decision-taking of, the audited undertaking.

(2) During the period in which a statutory audit is being carried out, a statutory auditor or audit firm, as the case may be, shall take all reasonable steps to ensure that his or her independence is not affected by—

(a) any existing or potential conflict of interest, or

(b) any business or other direct or indirect relationship,

involving the statutory auditor or audit firm carrying out the statutory audit.

(3) Subsection (2) also applies, with any necessary modifications, to—

(a) the network of the statutory auditor or audit firm,

(b) the managers, auditors, employees or any other individuals whose services are placed at the disposal or under the control of the statutory auditor or audit firm,

(c) any person directly or indirectly linked to the statutory auditor or audit firm by control, and

(d) managers, auditors, employees or any other individuals whose services are placed at the disposal or under the control of a person linked to the statutory auditor or audit firm by control.

(4) The obligations referred to in subsections (1) and (2) shall be required at least during both the period to which the financial statements to be audited relate and the period during which the statutory audit is carried out.

Professional scepticism

1534. (1) When carrying out a statutory audit, the statutory auditor or the audit firm shall—

(a) maintain professional scepticism throughout the audit,

(b) maintain professional scepticism when reviewing management estimates relating to fair values, the impairment of assets, provisions, and future cash flow relevant to the audited undertaking’s ability to continue as a going concern, and

(c) recognise the possibility of a material misstatement due to facts or behaviour indicating irregularities, including fraud or error, notwithstanding the statutory auditor’s or the audit firm’s past experience of the honesty and integrity of the audited undertaking’s management and of the persons charged with its governance.

(2) For the purposes of this section, ‘professional scepticism’ means an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Prohibited relationships - specific provisions to secure independence

1535. (1) A statutory auditor or audit firm shall not carry out a statutory audit if there is any threat of self-review, self-interest, advocacy, familiarity, or intimidation, created by any direct or indirect financial, personal, business, employment or other relationship between—

(a) the statutory auditor or audit firm or network to which he or she belongs or any individual in a position to influence the outcome of the statutory audit, and

(b) the audited undertaking,

as a result of which an objective, reasonable and informed third party, taking into account the safeguards applied, would conclude that the statutory auditor’s or audit firm’s independence is compromised.

(2) Without prejudice to the generality of subsection (1), a person shall not act as a statutory auditor of an undertaking if he or she is—

(a) an officer or servant of the undertaking,

(b) a person who has been an officer or servant of the undertaking within a period in respect of which accounts would fall to be audited by the person if he or she were appointed auditor of the undertaking,

(c) a parent, spouse, brother, sister or child of an officer of the undertaking,

(d) a person who is a partner of or in the employment of an officer of the undertaking,

(e) a person who is disqualified under this subsection for appointment as auditor of a body corporate that is a subsidiary or holding undertaking of the undertaking or a subsidiary of the undertaking’s holding undertaking, or would be so disqualified if the body corporate were a company, or

(f) a person in whose name a share in the undertaking is registered, whether or not that person is the beneficial owner of the share.

(3) Without prejudice to the generality of subsections (1) and (2), a statutory audit firm, regardless of its legal structure, shall not carry out a statutory audit of an undertaking if—

(a) any principal of the audit firm is an officer or servant of the undertaking,

(b) any principal of the audit firm has been an officer or servant of the undertaking within a period in respect of which accounts would fall to be audited by the firm if the firm was appointed auditor of the undertaking, or

(c) the firm is disqualified under this subsection for appointment as auditor of any other body corporate that is a subsidiary or holding undertaking of the undertaking or a subsidiary of the undertaking’s holding undertaking, or would be so disqualified if the body corporate were a company.

(4) Without prejudice to the generality of subsections (1) to (3), a person shall not carry out a statutory audit of an undertaking on behalf of a statutory audit firm if he or she is—

(a) a person in whose name a share in the undertaking is registered, whether or not that person is the beneficial owner of the share, or

(b) a parent, spouse, brother, sister or child of an officer of the undertaking.

Prohibited relationships - financial or beneficial interest

1536. (1) A statutory auditor, an audit firm, the key audit partner of an audit firm, the employees of the statutory auditor or audit firm, and any other individual whose services are placed at the disposal or under the control of the statutory auditor or audit firm and who is directly involved in statutory audit activities, and persons closely associated with them within the meaning of Article 1(2) of Commission Directive 2004/72/EC of 29 April 2004[^9] implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and the notification of suspicious transactions, shall not—

(a) hold or have a material and direct beneficial interest in, or

(b) engage in any transaction in any financial instrument issued, guaranteed, or otherwise supported by,

any audited undertaking within their area of statutory audit activities, other than interests owned indirectly through diversified collective investment schemes, including managed funds such as pension funds or life assurance.

(2) A statutory auditor, an audit firm, the key audit partner of the audit firm, the employees of the statutory auditor or audit firm, and any other individual referred to in subsection (1), shall not participate in or otherwise influence the outcome of a statutory audit of any particular audited undertaking if he or she—

(a) owns financial instruments of the audited undertaking, other than interests owned indirectly through diversified collective investment schemes,

(b) owns financial instruments of any undertaking related to the audited undertaking, the ownership of which may cause, or may be generally perceived as causing, a conflict of interest, other than interests owned indirectly through diversified collective investment schemes, or

(c) has had an employment, business or other relationship with the audited undertaking within the period to which the financial statements to be audited relate and the period during which the statutory audit is carried out that may cause, or may be generally perceived as causing, a conflict of interest.

(3) A statutory auditor, an audit firm, the key audit partner of the audit firm, the employees of the statutory auditor or audit firm, and any other individual referred to in subsection (1), shall not solicit or accept pecuniary or non-pecuniary gifts or favours from the audited undertaking or any undertaking related to an audited undertaking unless an objective, reasonable and informed third party would consider the value thereof as trivial or inconsequential.

Prohibited relationships - mergers and acquisitions

1537. (1) If, during the period to which the financial statements relate, an audited undertaking is acquired by, merges with, or acquires, another undertaking, the statutory auditor or audit firm shall identify and evaluate any current or recent interests or relationships, including any non-audit services provided to that undertaking, which, taking into account available safeguards, could compromise the statutory auditor’s or audit firm’s independence and ability to continue with the statutory audit after the effective date of the merger or acquisition.

(2) As soon as possible, and in any event within 3 months of the merger or acquisition referred to in subsection (1), the statutory auditor or audit firm shall take all such steps as may be necessary to terminate any current interests or relationships that would compromise his or her independence and shall, where possible, adopt safeguards to minimise any threat to his or her independence arising from prior and current interests and relationships.

Threats to independence and other information to be recorded

1538. A statutory auditor or audit firm shall document in the audit working papers all significant threats to his or her independence as well as the safeguards applied to mitigate those threats.

Preparation for statutory audit and assessment of threats to independence

1539. A statutory auditor or audit firm shall, before accepting or continuing an engagement for a statutory audit, assess and document the following:

(a) whether he or she complies with the requirements set out in sections 1533 and 1535 to 1538;

(b) whether there are threats to his or her independence and the safeguards applied to mitigate those threats;

(c) whether he or she has the competent employees, time and resources needed in order to carry out the statutory audit in an appropriate manner;

(d) whether, in the case of an audit firm, the key audit partner is approved as statutory auditor in the Member State requiring the statutory audit.

Non-intervention by certain persons in execution of audit

1540. Neither—

(a) the owners or shareholders of a statutory audit firm or the owners or shareholders of an affiliated firm, nor

(b) the members of the administrative, management or supervisory body of such a firm or of an affiliated firm,

shall intervene in the execution of a statutory audit in any way which jeopardises the independence and objectivity of the statutory auditor who carries out the statutory audit on behalf of the statutory audit firm.

Internal organisation of statutory auditors and audit firms

1541. (1) A statutory auditor or audit firm shall comply with the following organisational requirements:

(a) the audit firm shall establish appropriate policies and procedures to ensure that no person, including any partner, director, member or shareholder of the audit firm or of a firm in its network, intervenes in the carrying out of a statutory audit in any way which jeopardises the independence and objectivity of the statutory auditor who carries out the statutory audit on behalf of the audit firm;

(b) the statutory auditor or audit firm shall have sound administrative and accounting procedures, internal quality control mechanisms, effective procedures for risk assessment, and effective control and safeguard arrangements for information processing systems;

(c) the statutory auditor or audit firm shall establish appropriate policies and procedures to ensure that his or her employees and any other individuals whose services are placed at his or her disposal or under his or her control, and who are directly involved in the statutory audit activities, have appropriate knowledge and experience for the duties assigned;

(d) (i) the statutory auditor or audit firm shall establish appropriate policies and procedures to ensure that the undertaking by other persons of important audit functions is not done in such a way as to impair the quality of the statutory auditor’s or audit firm’s internal quality control and the ability of the competent authorities to supervise the statutory auditor’s or audit firm’s compliance with the obligations laid down in the relevant provisions;

(ii) the statutory auditor or audit firm shall ensure that any audit functions carried out by such other persons does not affect his or her responsibility towards the audited undertaking;

(e) the statutory auditor or audit firm shall establish appropriate and effective organisational and administrative arrangements to prevent, identify, eliminate or manage and disclose any threats to his or her independence as referred to in sections 1533, 1535 to 1539 and 1547;

(f) the statutory auditor or audit firm shall establish appropriate policies and procedures for carrying out statutory audits, coaching, supervising and reviewing employees’ activities and organising the structure of the audit file as referred to in section 1543;

(g) the statutory auditor or audit firm shall establish an internal quality control system to ensure the quality of the statutory audit so that—

(i) such system includes, at least, the policies and procedures referred to in paragraph (f), and

(ii) responsibility for such system lies with a person who is qualified as a statutory auditor;

(h) the statutory auditor or audit firm shall use appropriate systems, resources and procedures to ensure continuity and regularity in the carrying out of his or her statutory audit activities;

(i) the statutory auditor or audit firm shall also establish appropriate and effective organisational and administrative arrangements for dealing with and recording incidents which have, or may have, serious consequences for the integrity of his or her statutory audit activities;

(j) the statutory auditor or audit firm shall have in place adequate remuneration policies, including profit-sharing policies, providing sufficient performance incentives to secure audit quality but the amount of revenue that the statutory auditor or audit firm derives from providing non-audit services to the audited undertaking shall not form part of the performance evaluation and remuneration of any person involved in, or able to influence the carrying out of, the audit;

(k) the statutory auditor or audit firm shall monitor and evaluate the adequacy and effectiveness of his or her systems, internal quality control mechanisms and arrangements established in accordance with the relevant provisions and take appropriate measures to address any deficiencies;

(l) the statutory auditor or audit firm shall—

(i) carry out an annual evaluation of the internal quality control system referred to in paragraph (g), and

(ii) keep records of the findings of that evaluation and any proposed measure to modify the internal quality control system.

(2) A statutory auditor or audit firm shall communicate, in writing, his or her policies and procedures referred to in subsection (1) to the employees of the statutory auditor or audit firm.

(3) A statutory auditor or audit firm shall take into consideration the scale and complexity of his or her activities when complying with the requirements set out in subsection (1).

(4) A statutory auditor or audit firm shall be able to demonstrate to the recognised accountancy body or Supervisory Authority that the policies and procedures designed to achieve compliance with this section are appropriate given the scale and complexity of activities of the statutory auditor or audit firm.

Organisation of work of statutory auditors and audit firms

1542. (1) An audit firm, when carrying out a statutory audit of an undertaking, shall designate at least one key audit partner who shall be actively involved in the carrying out of the statutory audit.

(2) An audit firm shall—

(a) provide the key audit partner with sufficient resources and with personnel that have the necessary competence and capabilities to discharge his or her duties appropriately, and

(b) ensure that the main criteria in selecting the key audit partner are securing audit quality, independence and competence.

(3) A statutory auditor, when carrying out a statutory audit of an undertaking, shall devote sufficient time to the engagement and shall assign sufficient resources to enable him or her to carry out his or her duties appropriately.

(4) A statutory auditor or audit firm shall keep records of any contraventions by him or her of the relevant provisions.

(5) A statutory auditor or audit firm shall keep records of any consequences of any contravention referred to in subsection (4), including the measures taken to address such contravention and to modify his or her internal quality control system.

(6) A statutory auditor or audit firm shall prepare an annual report containing an overview of any measures taken pursuant to subsection (5) and, in the case of an audit firm, shall communicate that report internally to the partners or directors, as may be appropriate, of the audit firm.

(7) A statutory auditor or audit firm shall document each request made and advices received where he or she asks external experts for advice.

Organisation of work of statutory auditors and audit firms - audit files

1543. (1) A statutory auditor or audit firm shall maintain a client account record that includes the following data for each audit client:

(a) the name, address and place of business;

(b) in the case of an audit firm, the name of the key audit partner;

(c) the fees charged for the statutory audit and the fees charged for other services in any financial year.

(2) A statutory auditor or audit firm shall create an audit file for each statutory audit which shall be closed not later than 60 days after the date of signature of the statutory auditors’ report concerned and, where applicable, the reports referred to in Articles 10 and 11 of Regulation (EU) No 537/2014.

(3) A statutory auditor or audit firm shall document and retain at least the data recorded pursuant to section 1538, and, where applicable, Articles 6 to 8 of Regulation (EU) No 537/2014 for a period of at least 6 years.

(4) A statutory auditor or audit firm shall retain any other data and documents that are of importance in support of the statutory auditors’ report and, where applicable, the reports referred to in Articles 10 and 11 of Regulation (EU) No 537/2014 and for monitoring compliance with the relevant provisions and other applicable legal requirements.

(5) A statutory auditor or audit firm shall keep records of any complaints made in writing about the performance of the statutory audits carried out by him or her.

Restrictions with regard to fees

1544. A recognised accountancy body shall ensure that its standards include provisions that fees for statutory audits—

(a) are not to be influenced by, or determined by, the provision of additional services to the audited undertaking, and

(b) are not to be based on any form of contingency.

Restrictions with regard to fees exemption on exceptional basis

1545. (1) A statutory auditor or audit firm may, pursuant to Article 4(2) of Regulation (EU) No 537/2014, request the Supervisory Authority for an exemption from the limits in that Article on total fees for services provided by him or her to a public-interest entity for a period of up to 2 financial years on an exceptional basis.

(2) A request shall be made in such form and manner as the Supervisory Authority specifies.

(3) On receipt of a request in the form specified in subsection (2), the Supervisory Authority shall—

(a) grant the exemption as requested,

(b) grant a shorter exemption than that requested, or

(c) refuse to grant the exemption.

(4) Where the Supervisory Authority, on receipt of a request for an exemption, considers that it requires additional information before making a decision under subsection (3), it may give notice of that to the statutory auditor or audit firm that made the request.

(5) The notice referred to in subsection (4) shall set out the additional information required by the Supervisory Authority.

(6) On receipt of a response to the notice from the statutory auditor or audit firm containing the additional information referred to in subsection (4), the Supervisory Authority shall—

(a) grant the exemption as requested,

(b) grant a shorter exemption than that requested, or

(c) refuse to grant the exemption.

(7) Where the Supervisory Authority grants an exemption under subsection (3) or (4), it shall—

(a) do so on an exceptional and case by case basis only, and

(b) publish its decision on its website.

(8) Where the Supervisory Authority refuses to grant an exemption under subsection (3)(c) or (6)(c), it shall provide reasons for its decision to the statutory auditor or audit firm.

Rotation of key audit partner in cases of public-interest entities

1546. The key audit partner responsible for carrying out a statutory audit of a public-interest entity shall cease his or her participation in the statutory audit of the entity not later than 5 years from the date of his or her first appointment to carry out such audit.

Moratorium on taking up certain positions in audited undertakings or public-interest entities

1547. (1) There shall not be taken up by—

(a) a statutory auditor who carries out a statutory audit of an undertaking, or

(b) the key audit partner who carries out, on behalf of an audit firm, a statutory audit of an undertaking,

any of the positions in that undertaking, specified in subsection (2), before a period of at least one year has elapsed since the day following the end of his or her direct involvement as a statutory auditor or key audit partner from the audit engagement.

(2) The specified positions referred to in subsection (1) are—

(a) a key management position in the audited undertaking,

(b) a position on the audit committee, or where such committee does not exist, such body as performs the equivalent functions to the audit committee, of the audited undertaking, or

(c) a non-executive member position of the audited undertaking or a member’s position of that undertaking.

(3) There shall not be taken up by—

(a) a statutory auditor who carries out a statutory audit of a public-interest entity, or

(b) the key audit partner who carries out, on behalf of an audit firm, a statutory audit of a public-interest entity,

any of the positions in that entity, specified in subsection (4), before a period of at least 2 years has elapsed since the day following the end of his or her direct involvement as a statutory auditor or key audit partner from the audit engagement.

(4) The specified positions referred to in subsection (3) are—

(a) a key management position in the audited entity,

(b) a position on the audit committee, or where such committee does not exist, such body as performs the equivalent functions to the audit committee, of the audited entity, or

(c) a non-executive member position of the audited entity or a member’s position of that entity.

(5) Where an employee or partner, other than the key audit partner, of a statutory auditor or audit firm, or any other individual whose services are placed at the disposal or under the control of the statutory auditor or audit firm, and when such employee, partner or other individual is personally approved as a statutory auditor, there shall not be taken up by such employee, partner or other individual any of the positions referred to in subsections (2) and (4), before a period of at least one year has elapsed since the day following (should such occur) his or her involvement in the statutory audit engagement of that audited undertaking.

Rotation of statutory auditor and audit firms in case of public-interest entities - extension

1548. (1) A public-interest entity may, pursuant to Article 17(6) of Regulation (EU) No 537/2014, under exceptional circumstances request the Supervisory Authority for an extension to reappoint a statutory auditor or audit firm for a period of up to 2 years on an exceptional basis.

(2) The grounds for the exceptional basis may be events in the nature of mergers, acquisitions and special investigations but, in any case, it will be a matter for the Supervisory Authority to determine such grounds.

(3) A request shall be made in such form and manner as the Supervisory Authority specifies.

(4) On receipt of a request in the form specified in subsection (3), the Supervisory Authority shall—

(a) grant the extension as requested,

(b) grant a shorter extension than that requested, or

(c) refuse to grant the extension.

(5) Where the Supervisory Authority, on receipt of a request for an extension, considers that it requires additional information before making a decision under subsection (4), it shall give notice of that to the public-interest entity that made the request.

(6) The notice referred to in subsection (5) shall set out the additional information required by the Supervisory Authority.

(7) On receipt of a response to the notice from the public-interest entity containing the additional information referred to in subsection (5), the Supervisory Authority shall—

(a) grant the extension as requested,

(b) grant a shorter extension than that requested, or

(c) refuse to grant the extension.

(8) Where the Supervisory Authority grants an extension under subsection (4) or (5), it shall—

(a) do so on an exceptional and case by case basis only, and

(b) publish its decision on its website.

(9) Where the Supervisory Authority refuses to grant an extension under subsection (4)(c) or (7)(c), it shall provide reasons for its decision to the public-interest entity.

Rotation - reports by statutory auditor and audit firm in case of public-interest entities

1549. (1) If there is uncertainty as to the date on which a statutory auditor or audit firm began carrying out consecutive statutory audits for a public-interest entity (including due to firm mergers, acquisitions, or changes in ownership structure), the statutory auditor or audit firm shall immediately report (in accordance with Article 17(8) of Regulation (EU) No 537/2014 and in such form and manner as the Supervisory Authority specifies) such uncertainty to the Supervisory Authority.

(2) On receipt of a report in the form specified in subsection (1), the Supervisory Authority shall—

(a) determine the relevant date for the purposes of that subsection, or

(b) request additional information from the statutory auditor or audit firm before making a decision referred to in paragraph (a).

(3) Where the Supervisory Authority, on receipt of a report, considers that it requires additional information from the statutory auditor or audit firm or public-interest entity before making a decision under subsection (2)(a), it shall—

(a) give notice of that to the statutory auditor or audit firm or public-interest entity within 2 weeks after the receipt of the report, and

(b) set out, in the notice, the additional information required by the Supervisory Authority.

(4) On receipt of a response to the notice from the statutory auditor or audit firm or public-interest entity containing the additional information referred to in subsection (3), the Supervisory Authority shall—

(a) determine the relevant date for the purposes of subsection (1), and

(b) provide reasons for its decision to the statutory auditor or audit firm and public-interest entity.

Provision of certain prohibited non-audit services by auditors of public-interest entities

1550. (1) Subject to subsection (2), a statutory auditor or audit firm carrying out the statutory audit of a public-interest entity, or any member of the network to which the statutory auditor or the audit firm belongs, may provide the following non-audit services to the audited entity, to its holding undertaking within the European Union or to its controlled undertakings (within the meaning of point (f) of Article 2(1) of the Transparency (Regulated Markets) Directive as defined in section 1379) within the European Union:

(a) tax services relating to—

(i) preparation of tax forms,

(ii) identification of public subsidies and tax incentives where support from the statutory auditor or audit firm in respect of such services is required by law,

(iii) support regarding tax inspections by tax authorities where support from the statutory auditor or audit firm in respect of such inspections is required by law,

(iv) calculation of direct and indirect tax and deferred tax, or

(v) provision of tax advice,

(b) valuation services, including valuations performed in connection with actuarial services or litigation support services.

(2) The non-audit services referred to in subsection (1) may only be provided as specified in that subsection if—

(a) they have no direct or have immaterial effect, separately or in the aggregate, on the audited financial statements,

(b) the estimation of the effect on the audited financial statements is comprehensively documented and explained in the additional report to the audit committee, and

(c) the principles of independence set out in this Part are complied with by the statutory auditor or audit firm.

(3) The audit committee or the directors of the public-interest entity, as applicable, shall, at such times as it or they, as the case may be, thinks or think it appropriate to do so, issue guidelines with regard to the non-audit services referred to in subsection (1).

Chapter 16

Audit committees

Audit committees for public-interest entities

1551. (1) Subject to the other provisions of this section, the directors of each public-interest entity shall establish an audit committee for the entity.

(2) The majority of the members of the audit committee shall be non-executive directors of the public-interest entity, that is to say, directors—

(a) the terms of appointment of whom indicate or state that they are being appointed in a non-executive capacity, and

(b) who otherwise possess the requisite degree of independence (particularly with regard to each of them satisfying the condition in subsection (3)) so as to be able to contribute effectively to the committee’s functions.

(3) The condition referred to in subsection (2)(b) is that the director does not have, and at no time during the period of 3 years preceding his or her appointment to the committee did have—

(a) a material business relationship with the public-interest entity, either directly, or as a partner, shareholder, director (other than as a non-executive director) or senior employee of a body that has such a relationship with the entity, or

(b) a position of employment in the public-interest entity.

(4) At least one of the directors referred to in subsection (2) shall be a person who has competence in accounting or auditing.

(5) For the purposes of subsections (2) and (3)(a), a non-executive director is a director who is not engaged in the daily management of the public-interest entity or body concerned, as the case may be.

(6) The members of the audit committee as a whole shall have competence relevant to the sector in which the audited entity is operating.

(7) The chairman of the audit committee shall be appointed by its members and shall be independent of the audited entity.

(8) Any proposal of the directors of a public-interest entity with respect to the appointment of a statutory auditor or audit firm to the entity shall be based on a recommendation made to the directors by the audit committee.

(9) The statutory auditor or audit firm shall report to the audit committee of the public-interest entity on key matters arising from the statutory audit of the entity, and, in particular, on material weaknesses in internal control in relation to the financial reporting process.

(10) (a) Subject to paragraph (b), subsection (1) shall not apply to public-interest entities which meet the criteria set out in points (f) and (t) of Article 2(1) of the 2003 Prospectus Directive provided that the functions assigned to an audit committee are performed by the board of directors as a whole.

(b) The chairman of the board of directors, being an executive member, shall not act as chairman while the board is performing the functions of the audit committee.

(11) Subsection (1) shall not apply to a public-interest entity if it is—

(a) a public-interest entity which is a subsidiary undertaking within the meaning of point 10 of Article 2 of the Accounting Directive if that entity fulfils the requirements set out in subsections (1) and (2) and Articles 11(1) and (2) and 16(5) of Regulation (EU) No 537/2014 at group level,

(b) any public-interest entity which is a UCITS (within the meaning of the UCITS Regulations as defined in section 1385), or an alternative investment fund (within the meaning of the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. No. 257 of 2013)),

(c) subject to subsection (12), any public-interest entity the sole business of which is to act as an issuer of asset backed securities as defined in point 5 of Article 2 of the Prospectus Regulation (within the meaning of section 1348), or

(d) any credit institution within the meaning of point 1 of Article 3(1) of Directive 2013/36/EU of 26 June 2013[^10] on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC whose shares are not admitted to trading on a regulated market of any Member State and which has, in a continuous or repeated manner, issued only debt securities admitted to trading on a regulated market, provided that the total nominal amount of all such debt securities remains below €100,000,000 and that it has not published a prospectus under the 2003 Prospectus Directive.

(12) A public-interest entity that avails itself of the exemption under subsection (11)(c) shall, by means of a statement to that effect included in a published document, such as—

(a) in any annual report published by it, or

(b) in an annual return or other periodic statement delivered by it to the Registrar or Central Bank,

set forth the reasons for why it considers the establishment of an audit committee by it is not appropriate and, accordingly, why it has availed itself of that exemption.

(13) (a) Subject to paragraph (b), subsection (1) shall not apply to a captive insurance undertaking or captive reinsurance undertaking (in each case within the meaning of Regulation 3 of the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. No. 485 of 2015)) provided that it has a body or bodies performing equivalent functions to an audit committee, established and functioning in accordance with provisions in place in the State in which the public-interest entity to be audited is registered (in such case the entity shall disclose on its website which body carries out those functions and how that body is composed).

(b) A captive insurance undertaking or captive reinsurance undertaking which falls within paragraph (a) shall satisfy the following conditions:

(i) it shall not be owned by a credit institution;

(ii) it shall not issue transferable securities admitted to trading on a regulated market.

(14) Without prejudice to the responsibility of the directors of the public-interest entity, the responsibilities of the audit committee shall include—

(a) informing directors of the entity of the outcome of the statutory audit and explaining how the statutory audit contributed to the integrity of financial reporting and what the role of the audit committee was in that process,

(b) monitoring the financial reporting process and submitting recommendations or proposals to the directors of the entity to ensure its integrity,

(c) monitoring the effectiveness of the entity’s internal quality control and risk management systems and, where applicable, its internal audit, regarding the financial reporting of the entity, without breaching its independence,

(d) monitoring the statutory audit of the entity and group financial statements, in particular, its performance, taking into account any findings and conclusions by the Supervisory Authority pursuant to Article 26(6) of Regulation (EU) No 537/2014,

(e) reviewing and monitoring the independence of the statutory auditors or the audit firms in accordance with sections 1535 to 1541 and Article 6 of Regulation (EU) No 537/2014, and, in particular, the appropriateness of the provision of non-audit services to the audited entity in accordance with Article 5 of that Regulation, and

(f) being responsible for the procedure for the selection of a statutory auditor or audit firm and recommending the statutory auditor or audit firm to be appointed in accordance with Article 16 of Regulation (EU) No 537/2014 except when Article 16(8) of that Regulation is applied.

(15) Subsection (8) applies to a proposal of the directors (with respect to the appointment of a statutory auditor or audit firm to a public-interest entity) made at any time after the establishment of the audit committee in respect of the entity.

(16) The other provisions of the relevant provisions with regard to the performance of a function by the audit committee apply with respect to financial statements of the public-interest entity for financial years beginning on or after the establishment of the audit committee in respect of the entity.

(17) A person who, without reasonable excuse, contravenes subsection (12) shall be guilty of a category 3 offence.

(18) Section 167 shall not apply to a public-interest entity which is both a UCITS referred to in subsection (11)(b) and a company.

(19) In this section, ‘2003 Prospectus Directive’ has the meaning assigned to it by section 1348.

Chapter 17

Cooperation with other Member States

Cooperation with other Member States

1552. (1) With regard to the cooperation that the State is required to engage in by virtue of Article 33 of the Audit Directive, the Supervisory Authority is assigned responsibility in that behalf.

(2) For the purpose of discharging that responsibility, the Supervisory Authority shall put in place appropriate mechanisms, including arrangements with competent authorities in other Member States.

Specific requirements with regard to cooperation

1553. (1) Subject to section 1552, the Supervisory Authority, the recognised accountancy bodies and the Registrar with functions relating to approval, registration, quality assurance, inspection and discipline under the relevant provisions shall cooperate with the counterpart authorities in other Member States and the relevant European Supervisory Authorities whenever necessary for the purpose of those authorities or bodies (or, as the case may be, the counterpart authorities) carrying out their respective functions under the relevant provisions or, as the case may be, the laws of the other Member State concerned that implement the Audit Directive.

(2) Subject to section 1552, the Supervisory Authority, the recognised accountancy bodies and the Registrar with the foregoing functions under the relevant provisions shall render assistance to the counterpart authorities in other Member States and to the relevant European Supervisory Authorities and, in particular, shall exchange information and cooperate with them in investigations relating to the carrying out of statutory audits.

(3) In this section, ‘counterpart authorities in other Member States’ means competent authorities or bodies in other Member States with functions corresponding to those of the Supervisory Authority, the recognised accountancy bodies and the Registrar with regard to approval, registration, quality assurance, inspection and discipline under the relevant provisions.

Confidentiality of information

1554. (1) A person shall not disclose, except in accordance with law, information that—

(a) is obtained in performing functions under any provision of the relevant provisions, and

(b) has not otherwise come to the notice of members of the public.

(2) A person who contravenes subsection (1) shall be guilty of a category 3 offence.

Supplemental provisions in relation to section 1554

1555. Without prejudice to section 1554, the persons to whom that section applies shall include the following:

(a) a member or director or former member or director of any board or committee, howsoever called, of the Supervisory Authority, the recognised accountancy bodies or the Registrar;

(b) an employee or former employee of the Supervisory Authority, the recognised accountancy bodies or the Registrar;

(c) a professional or other advisor to the Supervisory Authority, the recognised accountancy bodies or the Registrar including a former advisor.

Obligation to supply information required for certain purposes and saving concerning confidential information

1556. (1) The Supervisory Authority or a recognised accountancy body shall, on request and without undue delay, supply any information required for the purpose referred to in section 1553.

(2) Section 1554 shall not prevent the Supervisory Authority or a recognised accountancy body from complying with any such request or exchanging confidential information.

Obligation of Supervisory Authority or recognised accountancy body to gather information

1557. (1) Where necessary, the Supervisory Authority or a recognised accountancy body, on receiving a request referred to in section 1556(1), shall, without undue delay, take the necessary measures to gather the required information.

(2) If the Supervisory Authority or a recognised accountancy body of whom a request under subsection (1) is made is not able to supply, without undue delay, the required information, it shall notify the counterpart authority in the other Member State that made the request of—

(a) the fact of the delay, and

(b) the reasons therefor.

Application of section 1554 to certain information

1558. Section 1554 shall apply to information received by the Supervisory Authority, a recognised accountancy body or the Registrar pursuant to the cooperation or exchange of information that is required of counterpart authorities of Member States by this Chapter.

Requesting authority to be notified if its request not complied with

1559. (1) If—

(a) the Supervisory Authority or a recognised accountancy body of whom a request referred to in section 1556(1) is made does not comply with the request, and

(b) the case is neither—

(i) one of a delay in complying with the request to which section 1557(2) relates, nor

(ii) one of a refusal to comply with the request on any of the grounds referred to in section 1560,

the Supervisory Authority or recognised accountancy body, as appropriate, shall notify the counterpart authority in the other Member State that made the request of the reasons for that failure to comply.

(2) If it is a recognised accountancy body as referred to in subsection (1)(a), it shall also notify the Supervisory Authority of the reasons for the failure referred to in that subsection.

Grounds for refusing request for information

1560. (1) The Supervisory Authority or a recognised accountancy body may refuse to comply with a request referred to in section 1556(1) if—

(a) the ground referred to in point (a) of paragraph 4 of Article 36 of the Audit Directive applies,

(b) proceedings in any court in the State have already been initiated in respect of the same actions and against the same statutory auditor or audit firm, the subject of the request, or

(c) a final determination has already been made by the Supervisory Authority or recognised accountancy body in respect of the same actions and the same statutory auditor or audit firm, the subject of the request.

(2) A recognised accountancy body shall not exercise the power under subsection (1) to refuse to comply with a request save after consultation with the Supervisory Authority.

(3) The Supervisory Authority or a recognised accountancy body that refuses, under subsection (1), to comply with a request shall notify the counterpart authority in the other Member State that made the request of the reasons for the refusal.

(4) A recognised accountancy body, referred to in subsection (3), shall also notify the Supervisory Authority of the reasons for the refusal referred to in that subsection.

Use to which information may be put

1561. (1) The Supervisory Authority or a recognised accountancy body may use relevant information only for the performance by it of its functions under the relevant provisions and then only in the context of steps it takes in—

(a) investigating and detecting failures to comply with the relevant provisions, and

(b) initiating and employing disciplinary procedures, or maintaining proceedings in any court, in respect of any such failures.

(2) Subject to section 1552, subsection (1) is without prejudice to any obligations, by virtue of any proceedings being maintained in any court, to which the Supervisory Authority or a recognised accountancy body or European Supervisory Authority is subject as regards the use to which it may put information referred to in that subsection and in the context of administrative or judicial proceedings specifically related to the performance of those functions.

(3) (a) The Supervisory Authority may transmit to the competent authorities in other Member States responsible for supervising public-interest entities, to central banks, to the European System of Central Banks and to the European Central Bank, in their capacity as monetary authorities, and to the European Systemic Risk Board, confidential information intended for the performance of their respective functions.

(b) Such authorities or bodies shall not be prevented from communicating, to the Supervisory Authority, information that the Supervisory Authority may need in order to perform its functions under Regulation (EU) No 537/2014.

(4) In this section, ‘relevant information’ means information that the Supervisory Authority or a recognised accountancy body receives pursuant to the cooperation or exchange of information that is required of counterpart authorities of Member States in this Chapter.

Counterpart authority to be notified of non-compliance with Audit Directive and Regulation (EU) No 537/2014

1562. Where the Supervisory Authority or a recognised accountancy body forms, on reasonable grounds, the opinion that activities contrary to the provisions of the Audit Directive or of Regulation (EU) No 537/2014 are being, or have been, carried out on the territory of another Member State, it shall, as soon as possible—

(a) notify the counterpart authority in the other Member State of that opinion, and

(b) include in that notification specific details of the matter and the grounds for its opinion.

Counterpart authority may be requested to carry out investigation

1563. (1) In relation to activities that it suspects have been, or are being, carried on contrary to the provisions of the Audit Directive or Regulation (EU) No 537/2014, the Supervisory Authority or a recognised accountancy body may request the counterpart authority in another Member State to carry out an investigation in the territory of that Member State.

(2) A request under subsection (1) of the counterpart authority may be accompanied by a further request that one or more of the officers, or members of staff, of the Supervisory Authority or a recognised accountancy body be allowed to accompany officers, or members of staff, of the counterpart authority in the course of the investigation.

(3) A recognised accountancy body shall notify the Supervisory Authority of the making of a request by it under subsection (1) and, if such be the case, the making of the further request by it under subsection (2).

Duty of Supervisory Authority or recognised accountancy body to take certain action

1564. (1) Where the Supervisory Authority or a recognised accountancy body receives a notification from—

(a) the entity specifically responsible, pursuant to the laws of another Member State that implement Article 36 of the Audit Directive, for ensuring the cooperation referred to in that Article, or

(b) the counterpart authority in another Member State,

that activities contrary to the provisions of the Audit Directive or Regulation (EU) No 537/2014 are being, or have been, carried on in the State, it shall take appropriate action under the relevant provisions.

(2) The Supervisory Authority or a recognised accountancy body shall inform the notifying entity or authority of the outcome of that action, and to the extent possible, of significant developments in the period pending that outcome.

(3) A recognised accountancy body shall—

(a) notify the Supervisory Authority of the taking by it of the action referred to in subsection (1), and

(b) in addition to so informing, under subsection (2), the notifying entity or authority of those matters, inform the Supervisory Authority of the outcome of that action, and to the extent possible, of significant developments in the period pending that outcome.

Due consideration to be given to counterpart authority’s request for investigation

1565. (1) The Supervisory Authority or a recognised accountancy body shall give due consideration to a request made of it, pursuant to the laws of another Member State that implement Article 36 of the Audit Directive, to carry out an investigation in the State.

(2) If a request under subsection (1) is acceded to by the Supervisory Authority or a recognised accountancy body, the investigation shall be subject to the overall control of the Supervisory Authority or recognised accountancy body that receives the request.

(3) For the purpose of this section—

(a) the reference in subsection (1) to a request that is made pursuant to the laws of another Member State that implement Article 36 of the Audit Directive is a reference to such a request, whether or not it is accompanied by a further request (made pursuant to those laws) that one or more of the officers, or members of staff, of the requesting authority be allowed to accompany officers, or members of staff, of the Supervisory Authority or a recognised accountancy body in the course of the investigation, and

(b) the investigation is subject to the control as referred to in subsection (2) even if that further request is acceded to by the Supervisory Authority or a recognised accountancy body.

(4) A recognised accountancy body shall notify the Supervisory Authority—

(a) of the making of a request of it referred to in subsection (1), and

(b) if the request is acceded to by it, of the fact of the request being so acceded to.

Grounds for refusing request for investigation

1566. (1) The Supervisory Authority or a recognised accountancy body may refuse to accede to a request referred to in section 1565(1) made of it or a further request of the kind referred to in section 1565(3)(a) made of it if—

(a) the ground referred to in point (a) of paragraph 6 of Article 36 of the Audit Directive applies,

(b) proceedings in any court in the State have already been initiated in respect of the same actions and against the same statutory auditor or audit firm, the subject of the request, or

(c) a final determination has already been made by the Supervisory Authority or a recognised accountancy body in respect of the same actions and the same statutory auditor or audit firm, the subject of the request.

(2) A recognised accountancy body referred to in subsection (1) shall not exercise the power thereunder to refuse to accede to a request save after consultation with the Supervisory Authority.

(3) The Supervisory Authority or a recognised accountancy body that refuses, under subsection (1), to accede to a request shall notify the counterpart authority in the other Member State that made the request of the reasons for the refusal.

(4) A recognised accountancy body referred to in subsection (3) shall also notify the Supervisory Authority of the reasons for the refusal referred to in that subsection.

Chapter 18

Mutual recognition of regulatory arrangements between Member States

Mutual recognition of regulatory arrangements between Member States

1567. To the extent that the preceding provisions of this Part, or, where applicable, Regulation (EU) No 537/2014 do not operate to achieve the following effects in the law of the State, this Part or Regulation (EU) No 537/2014 and those preceding provisions (notwithstanding anything in them to the contrary) shall be read as operating, in a manner so that—

(a) (i) the principle of home-country regulation and oversight by the Member State in which the statutory auditor or audit firm is approved and the audited undertaking has its registered office is respected, and

(ii) without prejudice to subparagraph (i), audit firms approved in one Member State that perform audit services in another Member State in accordance with section 1465 shall be subject to quality assurance review in the home Member State and oversight in the host Member State of any audit carried out there,

(b) the imposition of additional requirements on a statutory auditor or audit firm in relation to the statutory audit concerning registration, quality assurance review, auditing standards, professional ethics and independence is prohibited in the case of—

(i) a statutory audit of consolidated financial statements, required by a Member State, of a subsidiary established in another Member State, and

(ii) an undertaking the securities of which are traded on a regulated market in another Member State to that in which it has its registered office, by that Member State, regarding the statutory audit of the accounts or consolidated accounts of that undertaking,

and

(c) a statutory auditor or audit firm, approved under section 1464 or Chapter 20, which is registered in any Member State and provides audit reports concerning accounts or consolidated accounts in accordance with section 1573, the systems of oversight, quality assurance, investigation and sanctions of the Member State where registration took place will apply.

Chapter 19

Transfer of audit working papers, etc., to third-country competent authorities

Transfer of audit documentation to third-country competent authority

1568. (1) Subject to section 1569, audit working papers or other documents held by a statutory auditor or audit firm and inspection or investigation reports relating to the audits concerned may be transferred to a third-country competent authority only if the Supervisory Authority, on a request being made of it in that behalf by the first-mentioned authority, determines that the following conditions are complied with (and authorises such transfer accordingly), namely—

(a) those audit working papers or other documents relate to the audit of an undertaking which—

(i) has issued securities in the third country concerned, or

(ii) forms part of a group that issues group financial statements in the third country concerned,

(b) the third-country competent authority meets requirements which have been declared adequate in accordance with Article 47(3) of the Audit Directive,

(c) there are working arrangements on the basis of reciprocity agreed between the Supervisory Authority and the third-country competent authority, and

(d) the transfer of personal data to the third country concerned is in accordance with the Data Protection Acts 1988 to 2018 and Regulation (EU) 2016/679.

(2) The working arrangements referred to in subsection (1)(c) shall ensure that—

(a) justification as to the purpose of the request for audit working papers and other documents is provided by the third-country competent authority concerned,

(b) the audit working papers and other documents are only transferred if—

(i) an obligation similar to that provided by section 1554 is provided under the laws of the third country concerned in relation to persons whilst in, and in any period subsequent to their ceasing to be in, the employment of the third-country competent authority, and

(ii) the protection of the commercial interests of the audited undertaking, including its industrial and intellectual property, is not undermined,

(c) the third-country competent authority uses audit working papers and other documents only for the performance of its functions of public oversight, quality assurance and investigations that meet requirements equivalent to those of Articles 29, 30 and 32 of the Audit Directive, and

(d) the request from a third-country competent authority for audit working papers or other documents held by a statutory auditor or audit firm can be refused by the Supervisory Authority if—

(i) the first ground referred to in point (d) of paragraph 2 of Article 47 of the Audit Directive applies,

(ii) proceedings in any court in the State have already been initiated in respect of the same actions and against the same statutory auditor or audit firm, the subject of the request, or

(iii) a final determination has already been made by the Supervisory Authority in respect of the same actions and the same statutory auditor or audit firm, the subject of the request.

(3) The Supervisory Authority has, for the purposes of the performance of its functions under the preceding subsections (including the taking of any steps that necessitate the perusal by it of the papers and other documents concerned so as to determine whether the transfer should be refused on any of the grounds referred to in subsection (2)(d)), the power to require the statutory auditor or audit firm concerned to produce to it the audit working papers and other documents; the statutory auditor or audit firm shall comply with such a requirement made of him or her by the Supervisory Authority.

Derogation from section 1568 in exceptional cases

1569. By way of derogation from section 1568, the Supervisory Authority may, in exceptional cases, allow a statutory auditor or audit firm to transfer audit working papers and other documents directly to a third-country competent authority, provided that—

(a) an investigation has been initiated by that competent authority in the third country concerned,

(b) such transfer does not conflict with the obligations with which statutory auditors and audit firms are required to comply in relation to the transfer of audit working papers and other documents to the Supervisory Authority,

(c) there are working arrangements with the third-country competent authority of a reciprocal nature that allow the Supervisory Authority direct access to audit working papers and other documents of audit entities in the third country concerned,

(d) the third-country competent authority informs in advance the Supervisory Authority of each direct request for information, indicating the reasons therefor, and

(e) conditions similar to those specified in section 1568(2)(a) to (d) are satisfied.

Particulars of working arrangements to be notified

1570. (1) Where the Supervisory Authority enters into working arrangements with a third-country competent authority in accordance with section 1568(1)(c), particulars of those working arrangements shall be published by the Supervisory Authority on its website without delay and those particulars shall include—

(a) the name of the third-country competent authority, and

(b) the jurisdiction in which it is established.

(2) Particulars of those working arrangements shall also be notified by the Supervisory Authority to the Commission.

Joint inspections

1571. The Supervisory Authority may perform the functions (whether in whole or in part) referred to in section 905(2)(n)(iii) in so far as such functions are part of a joint inspection under—

(a) Commission Implementing Decision (EU) 2016/1156 of 14 July 2016[^11] on the adequacy of the competent authorities of the United States of America pursuant to Directive 2006/43/EC of the European Parliament and of the Council, or

(b) any other Commission Implementing Decision made pursuant to Article 47(3) of the Audit Directive on the adequacy of competent authorities for the purposes of joint inspections.

Chapter 20

International aspects

Approval of third-country auditor

1572. (1) Without prejudice to Chapter 3 and subject to subsection (2), a recognised accountancy body may approve a third-country auditor as a statutory auditor if that person has furnished proof that he or she complies with requirements equivalent to those specified in sections 1464 and 1472.

(2) A third-country auditor shall not be approved under subsection (1) unless reciprocal arrangements with the third country concerned are in place, that is to say arrangements that enable a statutory auditor to carry out audits in that third country—

(a) by virtue of the law of that third country, and

(b) on fulfilment by the statutory auditor concerned of requirements no more onerous than those specified by this section and Chapter 3 for the third-country auditor’s approval under subsection (1).

Chapter 21

Registration and oversight of third-country auditors and third-country audit entities

Registration of third-country auditors and third-country audit entities

1573. (1)(a) Subject to paragraph (b), subsection (6) and section 1580, the Supervisory Authority shall, in accordance with the relevant provisions of Chapter 5 and Schedule 20, cause to be registered in each year in the public register every third-country auditor and third-country audit entity that indicates, in writing to it, his or her intention to provide an audit report concerning the accounts or consolidated accounts of an undertaking falling within subsection (3).

(b) Paragraph (a) shall not apply to a third-country auditor or third-country audit entity that provides audit reports concerning the annual or group financial statements of undertakings incorporated in third countries in respect of which—