COMPANY LAW: EUROPEAN PARLIAMENT ENDORSES NEW, TOUGHER AUDIT DIRECTIVE.

Under the new rules, European auditors and audit firms will be required to prove their independence from the management of the audited company. The law also requires the application of the International Auditing Standards (IAS) in European auditing.

The report by Bert Doorn (EPP-ED, Netherlands) on the revised Eighth Company Law Directive takes a more flexible approach than the commission and gives EU governments more room to adapt the directive to their national standards. "Corporate governance should be negotiated in the member states and there is no need for a single EU rule", Mr Doorn said during the debate.

Controversial Commission proposals for all publicly-listed companies to have a separate audit committee to supervise financial reporting procedures were scrapped. MEPs said the provision could charge companies with excessive financial and administrative burden. The approved amendments give governments the possibility to determine themselves the way in which firms are to supervise their internal auditing reporting.

Another controversial issue was the obligation for a public interest company to change auditors every five years and audit firm every seven, the so-called rotation. The approved amendment requires rotation, every seven years, only for key audit partner/statutory auditor, and not for the audit firms themselves. A compromise was also reached on the issue of auditors' liability. The text now asks the Commission to present an impact study on current national liability rules and an analysis on the possible limitations of the financial liability in the auditing profession. The Commission's Internal Market Directorate-General had in fact revealed plans for a consultation on this subject last December, but MEPs are obviously keen to speed things up.

Another important point is that an agreement was reached on a system for the Commission to adopt technical implementing rules by committee procedure. Current practice will continue until 2008. By then, the Parliament, Council and Commission should agree on a new comitology procedure, including Parliament's right to call back the technical measures if necessary ("call-back").

The...