Council of the Bars and Law Societies of the European Union (CCBE)
Mr. Jonathan G. Katz, Secretary
13 January, 2003
STRENGTHENING THE COMMISSION'S REQUIREMENTS REGARDING AUDITOR INDEPENDENCE: FILE NO. S7-49-02
The Council of Bars and Law Societies of the European Union (CCBE) is the representative body of over 500,000 European lawyers through its member bars and law societies. In addition to membership from EU bars, it has also observer representatives from a further 13 European countries’ bars. The CCBE responds regularly on behalf of its members to policy consultations which affect European lawyers.
The present document is the CCBE’s brief response to the proposed rule of the Securities and Exchange Commission (SEC) on ‘"Strengthening the Commission's Requirements Regarding Auditor Independence", where we wish to make only two short points.
The CCBE has supported the strengthening of auditors’ independence1, in particular at the European level in the context of European Commission Recommendation 2002/590/EC of 16 May 20022. The CCBE notes that the proposed rule of the SEC introduces a number of very significant steps to enhance auditors’ independence, in particular in relation to the almost total ban on non-audit services on the audit client. In this regard, the CCBE as a matter of principle welcomes the purpose pursued by the proposed new rule.
Although the CCBE was opposed to the inclusion of European lawyers in its earlier response to the SEC proposed rule on "Implementation of Standards of Professional Conduct for Attorneys", it would distinguish the position here on the following grounds. The proposed rule on attorneys may, if it is implemented in its draft form, require European lawyers to breach their own professional codes, as well as in some circumstances the criminal law. However, implementation of the proposed rule in this case would not lead any European auditors into similar quandaries under their home country rules. They would only lose the ability to render non-audit services, which is not even a possibility in those countries that prohibit MDP’s.
(b) Legal services by auditors:
Nevertheless, the CCBE would like to highlight an aspect of the relationship between auditors and legal services in Europe.
In some EU Member States, there is a monopoly on lawyers only giving legal advice (as is the position we believe in the United States), and in others there is not. In the latter, a wide range of people are able to give legal advice. As a result, it should be noted that recourse to the test in the proposed rule of whether the service could be provided only by someone licensed, admitted or otherwise qualified to practise law in the jurisdiction in which the service is provided may pose difficulties in some European countries.
For example, in Germany an auditor may under the law give legal advice provided the legal advice is in the direct context of the function of the auditor, and provided that these functions of the auditor could not be properly handled without the legal advice included. In other words, they render a service which is not exclusively reserved to someone licensed, admitted or otherwise qualified to practise law in the sense that the SEC uses this term in the proposed rule. Therefore, although the CCBE would agree that when auditors themselves give legal advice, their independence as auditors may be endangered, it is still a legal possibility for them to do so in a number of EU Member States.