International Standards on Auditing within the European Union

Dries SCHOCKAERT 

Senior Manager Auditing 

and Assurance <strong>Standards</strong> 

IRE-IBR 

Nathalie HOUYOUX 

Attaché Institut des 

Réviseurs d’Entreprises- 

Instituut van de 

bedrijfsrevisoren (IRE-IBR) 

VARIA / DIVERS 

<strong>International</strong> <strong>Standards</strong> on Auditing 

within the European Union 

The new Audit Directive of 17 th May 2006 enforces the use of “<strong>International</strong> <strong>Standards</strong> on Auditing” 

(ISAs) for all statutory audit to be performed in the EU. Aiming at a consistently high quality for all 

statutory audits required by Community law, the Audit Directive has given implementing powers to 

the European Commission (EC) to adopt the ISAs in accordance with the so-called “Comitology 

procedure”. Recently, this procedure has been modified in order for the European Parliament (EP) to 

exercise the so-called “scrutiny rights” when overseeing the administrative process of endorsement. 

This article indicates the importance of the ISAs, as established by the “<strong>International</strong> Auditing and 

Assurance <strong>Standards</strong> Board” (IAASB). It deals with the evolution from the genesis of the standard 

setting process at the international level to the so-called “Clarity Project” whereby the ISAs are “clarified” 

regarding their objectives and requirements. 

Finally, the article provides for a summary of the fairly complicated new comitology procedure, now 

incorporating a “regulatory procedure with scrutiny”. 

The text of this article refers to the situation existing on the 31 st August 2007 1 . 

1. The Genesis of IAPC and 

IAASB 

The process of international harmonization 

of financial reporting started in 

October 1972, when during the tenth 

international congress of accountants (held 

in Sydney), the <strong>International</strong> Coordination 

Committee for the Accountancy Profession 

(ICCAP) was founded. This congress 

laid the foundations for the genesis on 

29 June 1973 of the <strong>International</strong> 

Accounting <strong>Standards</strong> Committee (IASC), 

the predecessor of the <strong>International</strong> 

Accounting <strong>Standards</strong> Board (IASB), based 

in London. 

During the ninth international congress of 

accountants (held in Paris, 1967) an international 

working party has been created 2 

dealing with the convergence of international 

best practice in auditing. This decision 

followed the discussions back in 1962 

during the eight international congress of 

accountants (held in New York) on the 

necessity of creating a higher degree of 

uniformity in accounting and auditing 

standards. 

On 8 October 1977, ICCAP took the 

initiative, during the eleventh international 

congress (held in Munich 3 ) to create the 

<strong>International</strong> Federation of Accountants 

(IFAC) 4 . IFAC is the organization that took 

over the tasks of ICCAP from 1 November 

1977 onwards, thereby serving the 

accounting profession worldwide and 

having the public interest in mind. 

The decision to create the <strong>International</strong> 

Auditing Practices Committee (IAPC) was 

taken by the Board of IFAC on 8 October 

1977 5 . Being one of the most important 

committees of IFAC, IAPC developed the 

<strong>International</strong> Auditing Guidelines (IAGs), 

which were in fact the predecessors of the 

<strong>International</strong> <strong>Standards</strong> on Auditing 

1. The authors would like to thank Mrs. Karolina Majewska and Mr. Jean-Philippe Rabine (European Commission staff) 

for their valuable comments made to an earlier draft of this article. Any omissions, misconceptions or misstatements that 

could still be present within the text fall under the direct and sole responsibility of the authors of this article. 

2. Cf. IFAC News, February 2007, p. 12. 

3. Cf. World Congresses relevant to accounting and Turkish accounting congresses and symposiums, O. GÜVEMLI et alii, 

Chamber of Certified Public Accountants of Instanbul, Yayin n° 67, 2006, p. 131; and “Development of an <strong>International</strong> 

Federation of Accountants (IFAC)”, UEC Journal 1976, Vol. 11, n° 3, p. 182-185. 

4. 63 member bodies signed the official protocol. O. GÜVEMLI et alii (2006), ibid., p. 131) refer to a total of 57 member 

bodies. 

5. Cf. “IFAC. The First Fifteen Years. 1977-1992”, IFAC News May 2007, p. 9. 

LARCIER FORUM FINANCIER / REVUE BANCAIRE ET FINANCIÈRE 2007/8 515

INTERNATIONAL STANDARDS ON AUDITING WITHIN THE EUROPEAN UNION DRIES SCHOCKAERT & NATHALIE HOUYOUX 

(ISAs). The IAGs represented the “best practice” within 

the major audit firms at the time, within the field of 

auditing and review of historical financial information. 

The first IAG dealt with the purpose and the scope of an 

Table 1: Genesis and Development of ISAs and ISCQ 1 

<strong>Standards</strong> Title Genesis Future 

ISA 200 Objective and General Principles Governing an Audit of 

Financial Statements 

Sources: IFAC, Annual reports, 1978-2002, IAASB, Annual reports, 2002-2006, website IFAC (www.ifac.org), update dates from July 2007. 

audit and was approved in October 1979. Table 1 

provides for a survey of the international auditing guidelines/standards. 

The exposure drafts (ED’s) of these guidelines/standards 

are left out of this table. 

516 FINANCIEEL FORUM / BANK- EN FINANCIEWEZEN 2007/8 LARCIER 

Before 

2004 

Before 

1994 

Before 

1992 

Oct. 1979 ISA-200 ISA-200 ISA-1 IAG-1 

Subsequent modifications 

Dec. 2004, Oct. 2003, Mar. 1994, Oct. 

1991 (supersedes ex ISA-3, Sep. 1980) 

Finalisation date 

Clarity Project 

Jun. 2008 

ISA 210 Terms of Audit Engagements Jun. 1980 ISA-210 ISA-210 ISA-2 IAG-2 Dec. 2004, Feb. 2004, Mar. 1994 Jun. 2008 

ISA 220 Quality Control for Audits of Historical Financial Information 

Sep. 1981 ISA-220 ISA-220 ISA-7 IAG-7 Feb. 2004, Nov. 1993 Sep. 2008 

ISA 230 Documentation 

Jan. 1982 ISA-230 ISA-230 ISA-9 IAG-9 

Feb. 2004, Mar. 1994, Nov. 1993, 

Sep. 2005 

Sep. 2007 

ISA 240 The Auditor’s Responsibilities relating to Fraud in an 

Audit of Financial Statements 

Oct. 1982 ISA-240 ISA-240 ISA-11 IAG-11 Feb. 2004, Mar. 2001 Dec. 2006 

ISA 250 Consideration of Laws and Regulations in an Audit of 


Jul. 1993 ISA-250 ISA-250 ISA-31 - Feb. 2004, Mar. 1994 Mar. 2008 

ISA 260 Communications of Audit Matters with Those Charged 

with Governance 

Jun. 1999 ISA-260 ISA-260 - - Feb. 2004 Sep. 2007 

ISA 300 Planning an Audit of Financial Statements Feb. 1981 ISA-300 ISA-300 ISA-4 IAG-4 Jun. 2004, Jun. 1993, Dec. 2006 Dec. 2006 

ISA 315 Identifying and Assessing the Risks of Material Misstate- 

ISA-310 ISA-30 - Mar. 1994, created Dec. 1993 

ment Through Understanding the Entity and Its Environment 


Nov. 1993, Oct. 1991 (supersedes ex- 

IAG-20, created Jun. 1985, and ex- 

IAG-29, created Jul. 1990), created 

Jul. 1981 

Dec. 2006 

ISA-401 ISA-15 IAG-15 Mar. 1994, created Feb. 1984 

ISA 320 Audit Materiality Oct. 1987 ISA-320 ISA-320 ISA-25 IAG-25 Mar. 1994 Dec. 2007 

ISA 330 The Auditor’s Responses to Assessed Risks 

cf. ex-IAG-29 (superseded by ex-ISA- 

Oct. 003 ISA-330 ISA-330 - - 

6 in Oct. 1991, created Jul. 1990), 

Dec. 2006 

Dec. 2006 

ISA 402 Audit Considerations Relating to Entities Using Service 

Organizations 

Mar. 1994 ISA-402 ISA-402 ISA-6 - 

Feb. 2004 (Addendum to ex-ISA-6 in 

Oct. 1992) 

Sep. 2008 

ISA 450 Evaluation of Misstatements Identified During the Audit ISA-450 Dec. 2007 

ISA 500 Audit Evidence Jan. 1982 ISA-500 ISA-500 ISA-8 IAG-8 Oct. 2003, Nov. 1993, Jan. 1991 Jun. 2008 

ISA 501 Audit Evidence – Additional Considerations for Specific 

Items 

Mar. 1994 ISA-501 ISA-501 ISA-8 IAG-8 

Feb. 2004, Mar. 1995, and addendum 

to ex-ISA-8 in Feb. 1991 

Sep. 2008 

ISA 505 External Confirmations Jun. 2000 ISA-505 ISA-505 - - Feb. 2004 Sep. 2008 

ISA 510 Initial Engagements – Opening Balances Jul. 1990 ISA-510 ISA-510 ISA-28 IAG-28 Feb. 2004, Mar. 1996, Nov. 1993 Mar. 2008 

ISA 520 Analytical Procedures Jul. 1983 ISA-520 ISA-520 ISA-12 IAG-12 Feb. 2004, Jun. 1993, Oct. 1990 Sep. 2008 

ISA 530 Audit Sampling and Other Means of Testing Feb. 1985 ISA-530 ISA-530 ISA-19 IAG-19 Feb. 2004, Nov. 1997 Mar. 2008 

ISA 540 

ISA 545 

Audit of Accounting Estimates 

Auditing Fair Value Measurements and Disclosures 

Oct. 1987 

Jul. 2002 

ISA-540 

ISA-540 

ISA-545 

ISA-26 

- 

IAG-26 

- 

Feb. 2004, Nov. 1993 

Feb. 2004 

Dec. 2007 

ISA 550 Related Parties Oct. 1984 ISA-550 ISA-550 ISA-17 IAG-17 Feb. 2004, Mar. 1994 Mar. 2008 

ISA 560 

ISA 570 

Subsequent Events 

Going Concern 

Oct. 1995 

Jun. 1986 

ISA-560 

ISA-570 

ISA-560 

ISA-570 

ISA-21 

ISA-23 

IAG-21 

IAG-23 

Dec. 2004, Feb. 2004, Nov. 1993 

Feb. 2004, Jun. 1999 

Dec. 2007 

ISA 580 Management Representations Oct. 1985 ISA-580 ISA-580 ISA-22 IAG-22 Feb. 2004, Nov. 1993 Dec. 2007 

ISA 600 Audit of Group Financial Statements (before: Using the 

work of another auditor) 

Jul. 1981 ISA-600 ISA-600 ISA-5 IAG-5 Mar. 1994 Jul. 2007 

ISA 610 Considering the Work of Internal Auditing Jul. 1982 ISA-610 ISA-610 ISA-10 IAG-10 Feb. 2004, Mar. 1994 Dec. 2007 

ISA 620 Using the Work of an Expert Feb. 1985 ISA-620 ISA-620 ISA-18 IAG-18 Feb. 2004, Nov. 1993 Sep. 2008 

ISA 700 The Independent Auditor’s Report on a Complete Set of 

General Purpose Financial Statements 


Dec. 2004, Jun. 2001, Nov. 1993, Oct. 

1992, Oct. 1989 

Jun. 2008 

ISA 701 Modifications to the Independent Auditor’s Report Dec. 2004 ISA-705 ISA-700 - - - Jun. 2008 

ISA 706 Emphasis of Matter and other matters paragraphs in the 

Independent Auditor’s Report 

ISA-706 ISA-700 - - - Jun. 2008 

ISA 710 Comparatives Mar. 1996 ISA-710 ISA-710 - - Feb. 2004 Sep. 2008 

ISA 720 Other Information in Documents Containing Audited 


Feb. 1984 ISA-720 ISA-720 ISA-14 IAG-14 Feb. 2004, Mar. 1996, Nov. 1993 Sep. 2007 

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements 

Oct. 1986 ISA-800 ISA-800 ISA-24 IAG-24 Dec. 2004, Mar. 1994 Jun. 2008 

ISA (undet.) Control deficiencies noted in an audit (new) (undet.) Sep. 2008 

ISQC 1 Quality Control for Firms that Perform Audits and Reviews 

of Historical Financial Information, and Other Assurance 

and Related Services Engagements 

Feb. 2004 ISQC-1 ISQC-1 - - Sep. 2005 Sep. 2008

DRIES SCHOCKAERT & NATHALIE HOUYOUX INTERNATIONAL STANDARDS ON AUDITING WITHIN THE EUROPEAN UNION 

Table 2: Membership of IFAC 

Sources: IFAC, Annual report, 1978-2006, IAASB, Annual report, 2002-2006, IFAC, News, February 2007, website IFAC (www.ifac.org). 

The evolution of IFAC membership is illustrated in 

table 2. After a period of increased internationalisation of 

business activities and capital markets during the 1980s, 

IFAC counts 106 member bodies within 78 countries by 

the end of 1991, compared to a number of 72 member 

bodies within 55 countries by the end of 1978. In the 

context of this evolution and the expectation that IAGs 

would shortly be recognized by official securities organizations, 

IAPC reformed its framework of standards, 

following IFAC’s Constitution created in November 

1991. From now on, the “<strong>International</strong> Auditing Guidelines” 

(IAGs) will be renamed as “<strong>International</strong> <strong>Standards</strong> 

on Auditing” (ISAs). Doing so, IAPC acknowledges that 

its standards have obtained a benchmark status 6 for the 

audit and review engagements related to historical financial 

information. Therefore, IAPC, being one of the 

committees of IFAC, has become the auditing standard 

setter in the international marketplace. 

In October 1992 the <strong>International</strong> Organization of Securities 

COmmissions (IOSCO) published a resolution 

whereby ISAs will be recognized on capital markets as an 

acceptable alternative for national auditing standards, in 

the context of cross-border offerings of continuous 

reporting by foreign issuers 7 . 

In July 1994, IAPC laid the foundations for the structure of 

an ISA 8 , consisting of basic principles and essential procedures, 

which will be indicated by bold lettered paragraphs, 

and explanatory and informative guidance, which will be 

indicated by grey lettered paragraphs. Furthermore, the 

ISAs will be numbered per topic, thereby following the 

logical sequence of the performance of an audit of financial 

statements (series 200 on the responsibilities of the auditor, 

until the series 700 and 800 on reporting). 

In November 2001, IAPC was reformed by the general 

assembly of IFAC in order to become the “<strong>International</strong> 

Auditing and Assurance <strong>Standards</strong> Board (IAASB)” 9 . 

Using its new name, this Board intended to spend more 

time on standards for “assurance engagements”, which 

from January 2004 on, will be named the “<strong>International</strong> 

<strong>Standards</strong> on Assurance Engagements” (ISAEs). At the 

same time, a rigourous due process has been set up within 

IAASB regarding its standard setting function. 

By the end of 2004, IFAC counts 163 member bodies 

within in 119 countries, which represents twice the 

membership from 1978. 

6. Cf. IFAC, Annual Report 1993 (p. 1), and IFAC, Annual Report 1995 (p. 2). 

7. Following the reform of the ISAs in July 1994, IOSCO suspended the resolution. IOSCO never officially withdrew this resolution. Until today, IOSCO discusses 

within the Consultative Advisory Group (CAG) of IAASB on the evolution of auditing standards in the context of IAASB’s Clarity Project (cf. infra: par. 3). 

8. Cf. IFAC, Annual Report 1994 (p. 3). 

9. IAASB, Annual Report 2002 (p. 8). 



During 2004-2008, IAASB takes care of its “Clarity 

Project”, which will be dealt with in paragraph 3 of this 

article. 

2. Member Obligations 

The creation of IFAC’s constitution in November 1991 

impacted on the obligations of its member bodies. In the 

period before November 1991 IAGs constituted the 

“minimum guidelines” to be followed and promoted by 

the member bodies on the national level 10 . Of course, 

these standards cannot replace existing national standards 

issued by competent national standard setters or authorities 

11 : 

“<strong>International</strong> Auditing Guidelines issued by the IAPC do 

not override the local regulations referred to (..) above 

governing the audit of financial information of a particular 

country. (..) In the event of local regulations differing 

from, or being in conflict with, <strong>International</strong> Auditing 

Guidelines on a particular subject, member bodies, in 

accordance with the Constitution of IFAC, should work 

towards the implementation of the Guideline issued by 

the IAPC, when and to the extent practicable”. 

After November 1991, IAPC states that, as far as there is 

consistency between the IAGs and the local law and regulation, 

compliance with these national laws and regulations 

immediately results in compliance with IAGs. At 

that time, IFAC accepted that there were differences 

between local legislation and international standards. 

When IAGs conflicted with national law or regulation, the 

member bodies needed to comply with the obligations as 

set out in IFAC’s constitution: each member body, in its 

quality of standard setter, should use its best endeavors to 

incorporate the international standards (renamed as 

“ISAs”) within the national auditing standards. 

In April 2004, the ISAs received a benchmark status for 

the audit of financial statements, namely through the new 

member obligations 12 imposed by the Statements of 

Membership Obligations (SMO’s). In particular, paragraph 

4 of SMO 3 states that member bodies should use 

its best endeavors to establish convergence with the international 

standards, thus contributing towards the elimination 

of the differences of content between national and 

international auditing standards (added bold): 

“4. Member bodies should use their best endeavors: 

(a) To incorporate the <strong>International</strong> <strong>Standards</strong> and 

related Practice Statements issued by the IAASB into 

their national standards or related other pronouncements, 

or where responsibility for the development of 

national standards or related other pronouncements lies 

with third parties, to persuade those responsible to incorporate 

the <strong>International</strong> <strong>Standards</strong> and related Practice 

Statements into their national standards or related other 

pronouncements; and 

(b) To assist with the implementation of <strong>International</strong> 

<strong>Standards</strong> and related Practice Statements, or national 

standards and related other pronouncements that incorporate 

<strong>International</strong> <strong>Standards</strong> and related Practice 

Statements. 

Although the Constitution of IFAC and this SMO 

acknowledge national standards, member bodies should, 

in implementing their obligations of membership, have as 

a central objective the convergence of national standards 

or related other pronouncements with <strong>International</strong> 

<strong>Standards</strong> and related Practice Statements issued by the 

IAASB.” 

Following these obligations, the member bodies of IFAC 

have considered the ISAs as a basis for the national 

auditing standards. In Europe e.g., the Belgian, Dutch, 

Luxembourg, French and German auditing standards 

have been subject to a process of transformation (“transposition”) 

of the international “guidelines” (or “standards”): 

10. Cf. Towards the 21 st Century. Strategic Decisions for the Accountancy Profession, IFAC, p. 3. 

11. Cf. Explanatory Foreword van de <strong>International</strong> Auditing Guidelines (p. 3). 

12. At the time, the constitution of IFAC (p. 2) stated: 

“Member bodies shall (...) support the work of IFAC by bringing to the notice of their members every pronouncement developed by IFAC and by using their best 

endeavours: 

– to work towards implementation, when and to the extent possible under local circumstances, of those pronouncements and 

– specifically to incorporate in their national auditing standards the principles on which are based <strong>International</strong> <strong>Standards</strong> on Auditing developed by IFAC”. 

Cf. par. (16) and footnote (1) of the Preface to <strong>International</strong> <strong>Standards</strong> on Auditing and Related Services (the so-called “Preface of July 1994”), cf. Handbook of 

international auditing, assurance, and ethics pronouncements. 2005 Edition, IFAC, p. 119-125. 

Art. 4 of the revised constitution of IFAC (November 2005) states that member bodies of IFAC should: 

“c. demonstrate compliance with the obligations set out in the Statements of Membership Obligations (SMO’s), which may be revised from time to time by a 

majority vote of IFAC’s board.” 

518 FINANCIEEL FORUM / BANK- EN FINANCIEWEZEN 2007/8 LARCIER


– Belgium: the “Controleaanbevelingen” (“Recommandations de révision”), the overall auditing standards 

(“Algemene controlenormen”, “Normes Générales de révision”) and the “Normen inzake de 

certificatie van de geconsolideerde jaarrekening”, “Normes relatives à la certification des 

comptes annuels consolidés”) of the Instituut van de Bedrijfsrevisoren – Institut des Réviseurs 

d’Entreprises (IBR-IRE); all standards of IRE are renamed as “Normen en Aanbevelingen met 

betrekking tot de beroepsuitoefening” or “Normes et Recommandations d’exercice professionnel”). 

The official name of the standards, as indicated by the modified law of 22 July 1953 

regarding the creation of IRE, is “normen en aanbevelingen” (“normes et recommandations”) 1 ; 

– The Netherlands: the “Accountantsrichtlijnen” of Royal NIVRA (and NOvAA), that have become “Nadere Voorschriften 

Controle en Overige Standaarden” (COS) from 20072 onwards; 

– Luxembourg: the “Recommandations de révision” of the Institut des Réviseurs d’Entreprises (IRE Luxembourg); 

– France: until 1987 the “Recommandations relatives à l’exercice des missions”, from 1996 on “Normes 

professionnelles”, that have become (after the entry into force of the French law (“loi de sécurité 

financière”) 3 the “normes d’exercice professionnel” of the Compagnie Nationale des Commissaires 

aux Comptes (CNCC); 

– Germany: the “Prüfungsstandards” of the Institut der Wirtschaftsprüfer (IDW). 

1. Cf. art. 44 of the Royal Decree of 21 April 2007 “tot omzetting van bepalingen van de Richtlijn 2006/43/EG van het Europees Parlement en de Raad van 17 mei 2006 betreffende de wettelijke 

controles van jaarrekeningen en geconsolideerde jaarrekeningen, tot wijziging van de Richtlijnen 78/660/EEG en 83/349/EEG van de Raad, en houdende intrekking van Richtlijn 84/253/EEG 

van de Raad”, B.S. 27 april 2007, p. 22932. 

2. Following the entry into force on 1 October 2006 of the new Law “Wet Toezicht Accountantsorganisaties (WTA)”. 

3. Cf. art. L.821-1. of the Law n° 2003-706 du 1 er août 2003 de sécurité financière (J.O. n° 177 of 2 August 2003, p. 13220). 

3. The “Clarity Project” 

The so-called “Clarity project” of the <strong>International</strong> 

Auditing and Assurance <strong>Standards</strong> Board (IAASB) has 

been created following the comments in 2003 on the 

exposure draft (ED), “Operations Policy n° 1 – Bold Type 

Lettering Exposure Draft”. In this ED, the need to use 

black and grey lettering within the ISAs was debated. 

Significant comments were given by the <strong>International</strong> 

Organization of Securities COmmissions (IOSCO). This 

project was set up to deal with the comments on the 

setting of auditing standards that, back in 1994, regardless 

of IAPC’s consideration of these comments, were not 

followed by a corresponding modification of the ISAs. 

In September 2004, IAASB issued a Policy Statement 

“Clarifying Professional Requirements in <strong>International</strong> 

<strong>Standards</strong> Issued by the IAASB”, followed by a Consultation 

Paper “Improving the Clarity and Structure of 

IAASB <strong>Standards</strong> and Related Considerations for Practice 

Statements” 13 . 

Already in October 2005, 4 EDs were issued, namely 

ED ISA 300 on planning an audit of financial statements, 

ED ISA 315 on the auditor’s risk assessment, ED ISA 330 

on the reduction of the audit risk to an acceptably low 

level by performing audit procedures further to the 

auditor’s risk assessment 14 , and ISA 240 on the auditor’s 

responsibilities regarding fraud during an audit of financial 

statements. Medio 2006, the comment period expired 

and in December 2006 IAASB issued the final ISAs 240, 

300, 315 and 330, which, for the first time in history, were 

named “Clarified ISAs”. In July 2007, the IAASB 

approved ISA 600, “Audit of Group Financial Statements”. 

The other ISAs will be subject to a “clarification” process 

until the presumed final date of the project, namely 

December 2008. 

The essence of the “Clarity project” can be summarized as 

follows: 

1) The ISAs and ISQC 1 are based on clear principles or 

objectives; 

2) The objectives should be met on the basis of a number 

of requirements representing the essential procedures 

to be performed by the auditor in “virtually all” circumstances 

of the (audit) engagement; 

3) The necessary guidance (application guidance) is given 

to the auditor in order for him to apply these requirements 

in all circumstances of the (audit) engagement 

(small and less complex entities, public sector entities, 

larger entities, public interest entities, etc.); 

13. These standards, including the exposure drafts, can be consulted freely on IAASB’s website (www.ifac.org/iaasb), cf. “exposure drafts”. 

14. These standards are the revised versions of the IAASB standards approved in October 2003. 



4) In order to distinguish clearly between requirements 

and application material, IAASB decided in October 

2005 to use the word “shall” within the requirements 

section, and to use the present tense when dealing with 

explanatory material within the application guidance. 

IOSCO’s comments, dating back from 1994, have 

proven to be significant. The difference between requirements 

and application material will replace the 

existing difference between the “bold” and the grey 

lettering; 

5) Each “clarified” ISA is set following a structure consisting 

of a purpose, a requirements’ section and finally 

the application material. A short introduction and a 

set of definitions of key words will be provided for at 

the beginning of each ISA. Thus, the former “bold lettering” 

paragraphs are regrouped at the beginning of 

each ISA. 

The ISAs will be subject to this new structure in a progressive 

way: the more recent standards will be dealt with in 

the first stage of the project, and the older standards will 

follow. 

IAASB will check which of the existing bold and grey 

lettering paragraphs correspond with the newly created 

requirements and application guidance sections. A paragraph 

in a “to be clarified” ISA will be considered part of 

the requirements section if: 

1) the requirement is necessary to achieve the objective 

stated in the Standard; 

2) the requirement is expected to be applicable in virtually 

all engagements to which the Standard is relevant; 

and 

3) the objective stated in the Standard is unlikely to have 

been met by the requirements of other <strong>Standards</strong>; 

4) the requirements of an ISA as a whole is proportionate 

to the importance of the subject of the ISA, in order to 

realize the objective of an audit. 

A survey of the progress up to July 2007 made during 

IAASB’s “Clarity” Project is being given in table 1. The 

ISAs (ISQC-1 included) will be clarified following the 

planning provided by the “Clarity” Project: 

– 11 standards are to be revised completely (clarified 

structure + full revision of the content, i.e. “clarified 

and revised”, namely ISAs 260, 320 (and 450), 402, 

450, 505, 540 (and 545), 550, 580, 600, 620 and 800; 

– the other standards will only be clarified. Part of those 

standards have been recently rewritten and will thus 

only be subject to the clarification exercise (e.g. 

ISAs 230, 240, 300, 315, 330, 500, 700 and 701). In 

the context of the presumed deadline of the Clarity 

Project of December 2008, the remaining standards 

will only be clarified, without the content of those 

standards being subject to a complete revision (e.g. 

ISAs 210, 510, 520, 530, 710 and 720). Such a revision 

might be considered by IAASB in a later stage. 

4. Harmonisation of Auditing <strong>Standards</strong> 

within the European Union: 

The Objective 

After financial reporting scandals (Enron, WorldCom, 

Ahold, etc.), investors’ confidence in capital markets 

worldwide has weakened and public credibility of the 

audit profession has been impaired. In response of those 

scandals and in order to restore investors’ confidence, the 

US have adopted the Sarbanes-Oxley Act in 2002. 

Already from 1996, the European Commission (EC) 

developed an approach regarding the statutory audit 

function, which has been accelerated after these scandals 

and ultimately led to the approval in the EU of the Audit 

Directive, ten years later 15 . 

The initiative of a harmonised approach to statutory 

auditing in the EU was initiated by the EC’s 1996 Green 

Paper 16 on “The Role, Position and Liability of the Statutory 

Auditor in the EU”. 

The Policy conclusions, which the EC drew from these 

reflections, were included in the 1998 Communication 

“The Statutory Audit in the European Union, the way 

forward 17 ”. That Communication proposed the creation 

of an EU Committee on Auditing which would develop 

further action in close co-operation between the 

accounting profession and member states. The objective 

of this Committee was to improve the quality of the statutory 

audit by promoting quality assurance, the use of 

international auditing standards and auditor independence. 

On the basis of the work of this Committee, the EC issued 

the 2000 Recommendation on “Quality Assurance for the 

Statutory Auditor in the EU” 18 and the 2002 Recommen- 

15. Cf. D. SCHOCKAERT (2004b), “ISA. Een antwoord op de vertrouwenscrisis”, Bank Fin. September 2004, n° 4, p. 219-224. 

16. Green Paper of 28 October 1996, O.J.E.U., C 321, p. 1. 

17. Commission’s Communication of 8 May 1998, O.J.E.U., C 143, p. 12-16. 

18. Recommendation of 31 March 2001, O.J.E.U., L 091, p. 91. 



dation about “Statutory Auditors’ Independence in the 

EU” 19 . 

In its communication in 2003 on “Modernising Company 

Law and Enhancing Corporate Governance in the EU – A 

plan to move forward” 20 , the EC defined its priorities: 

“... strengthening public oversight of auditors at Member 

State and EU level, requiring ISAs for all EU statutory 

audits (...) and the creation of an EU Regulatory 

Committee on Audit, to complement the revised legislation 

and allow the speedy adoption of more detailed 

binding measures” and 

“The Commission envisaged the use of ISAs as a requirement 

for all EU statutory audits (...). However a 

successful implementation of a binding requirement to 

apply ISAs in the EU (...) requires the completion of a 

number of preliminary actions: the update and completion 

of the analysis of differences between ISAs and 

national audit requirements; the development of a set of 

principles (“framework”) for the assessment of ISAs; the 

availability of high quality translations into all Community 

languages. As to audit reporting, the Commission 

plans to use the forthcoming revision of ISA 700 (audit 

reporting) as a starting-point for analyzing differences 

between national audit reports by EU professional bodies, 

facilitated by the European Federation of Accountants 

(FEE).” 

Despite those non-biding instruments, the EC required 

further initiatives in order to reinforce investor confidence 

in capital markets and to enhance public trust in the statutory 

audit function in the EU taking into account that 

auditing is an important part of good corporate governance 

practice. 

On 17 th May 2006, the EP and the Council have adopted 

the new Directive on statutory audit (the “Audit Directive”) 

of annual accounts and consolidated accounts 21 , 

which replaces the “8 th ” Council Directive 84/253/EEC of 

10 April 1984. 

The Audit Directive of 2006 reflects a principles-based 

approach on auditing matters and aims at reinforcing and 

harmonising the statutory audit function throughout the 

EU. The purpose of the Directive is to reinforce the confidence 

in the functioning of the European capital markets 

by 

– clarifying the duties of statutory auditors, the independence 

and other ethical requirements; 

– by introducing a requirement for external quality assurance; 

– by ensuring public oversight over the audit profession 

by improving co-operation between competent authorities 

in the EU; and 

– by enforcing the use of ISAs for all statutory audits to 

be conducted in the EU, trough a process of adoption 

of the ISAs, named “endorsement”. 

5. Harmonisation of Auditing <strong>Standards</strong> 

within the European Union: The Means 

5.1. Comitology: The Genesis 

The Audit Directive of 17 th May 2006 is important in 

order to ensure a high quality for all statutory audits 

required by Community law requiring all statutory audits 

be carried out on the basis of all 22 international auditing 

standards 23 . The Directive has given implementing 

powers to the European Commission (EC), in order to 

adopt “en bloc” 24 the ISAs 25 in accordance with the 

Council Decision of 28 June 1999, also known as the 

“Comitology Decision” 26 . Within this context, the EC 

will need to be satisfied: 

– that the ISAs have been developed with proper due 

process, public oversight and transparency, and are 

generally accepted internationally; 

– that they contribute to a high level of credibility and 

quality in relation to the true and fair view of the annual 

or consolidated accounts; 

– that they are conducive to the European public good. 

19. Recommendation of 19 July 2002, O.J.E.U., L 191, p. 22. 

20. Commission’s Communication of 21 May 2003, COM(2003) 284 final, O.J.E.U., C 236, p. 2-13. 

21. The Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, 

amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC, O.J.E.U., 9 June 2006, L 157/87. 

22. It refers also to related standards such as the <strong>International</strong> Standard of Quality Control, Legislative Resolution from EP regarding the proposal for a directive on 

statutory audit of annual accounts and consolidated accounts and amending Council Directives 78/660/EEC and 83/349/EEC, PE 357.947v01-00, 2 June 2005, 

p. 5. 

23. Recital 13 of the Directive on statutory audit. 

24. Legislative Resolution from EP, o.c., p. 5. 

25. Art. 26 (2) of the Directive on statutory audit. 

26. Art. 26 (1) of the Directive on statutory audit. 



For many observers, Comitology constitutes a complex 

procedure within the decision-making process of the European 

Union (EU). Some experts even compared the subject 

of comitology to a kind of “Da Vinci Code” contained 

within European Law 27 . Comitology is in fact the area 

where most of the interinstitutional struggles take place, in 

particular those between the Council and the European 

Parliament (EP). Both institutions are legislative bodies 

and the Council constitutes an executive body as well. 

“Comitology” is the term used in order to refer to the 

working of committees, in concreto within the EU. The 

first committees were established in 1962, in the context 

of the Common Agricultural Policy. As the Council recognized 

that it lacked resources in order to set the necessary 

implementation rules, it ultimately decided to delegate 

implementing powers to the EC. Following this delegation, 

it was possible for the European legislator (Council) 

to concentrate on the setting of essential rules, leaving the 

technical implementation process in the hands of the EC 

and of experts within the committees. However, the 

Council did not intend to delegate these powers without 

keeping a certain control thereover. Therefore, it started 

using committees composed of experts originating from 

each member state. 

The decision to delegate implementing powers to the EC, 

was made on an “ad hoc” basis 28 following the absence 

of any juridical basis thereto (there was no formal 

“Comitology Decision” taken at the time). However, in 

the year 1970, the European Court of Justice declared 

that this system did not upset the institutional balance of 

the Community, as the intervention of a committee was 

only tasked with the forming of opinions rather than 

with the making of decisions. Furthermore, the separation 

between executive and legislative powers remained 

intact, as only implementing powers regarding “non- 

essential elements” of the legislation were delegated to 

the EC 29 . 

This “ad hoc” system of Comitology developed rapidly 

throughout the 1970s and 1980s mainly in other sectors 

than agriculture. 

In order to create a juridical basis for the delegation of 

these implementing powers to the EC, article 202 (former 

145) of the Treaty establishing the European Community 

(EC Treaty) was expanded trough the Single European 

Act of 1986. Trough this Act, the Council was mandated 

to impose requirements on the EC’s use of its implementing 

powers 30 . 

In July 1987, the Council adopted the so-called “1987 

Comitology Decision” (the first Comitology Decision) 

defining different committees as well as procedures for 

exercising the implementing powers. However, this Decision 

didn’t provide for any guidance as to which of the 

procedures needed to be applied in which situation. 

Furthermore, the 1987 Comitology Decision neglected 

the role of the EP whose powers have increased in the 

context of the co-decision making process following the 

Maastricht Treaty of 1992. 

The 1987 Comitology Decision was replaced by a (June) 

1999 Comitology Decision 31 . The 1999 Decision led to the 

reduction of the number of procedures to three (namely 

advisory 32 , management 33 and regulatory 34 procedures), 

and at the same time introduced criteria according to 

which the European legislator (Council and EP) selects the 

procedure to be applied in a given situation. 

The 1999 Decision allowed for the EP to play a minor role 

in the comitology procedures. Indeed, only for measures 

proposed by the EC in order to implement measures from 

basic acts 35 adopted under the codecision procedure (see 

27. See the speech of the Austrian Chancellor Wolfgang Schüssel at the press conference after the European Council in Brussels held on 16 th June 2006, http:// 

consilium.clients.telemak.com/60073/160606/archive_uk.html. 

28. European Information on Opinion & Governance, “Comitology”, 11 June 2003, http://www.euroactiv.com/en//comitology/article-117454; G. SCHUSTERSCHITZ 

and S. KOTZ, “The Comitology Reform of 2006: increasing the Powers of the European parliament Without Changing the Treaties”, European Constitutional Law 

Review, 3, 2007, 68-74; J.H.H. WEILER and M. KOCJAN, o.c., p. 3-5; Dr GEORG HAIBACH, “Council Decision 199/468 – A New Comitology Decision for the 21 st 

Century!?”, Eipascope 99/3, p. 10-18. 

29. E.C.J., December 17, 1970, (Koester), 25/70, Rec., p. 1161, pt. 9. 

30. The Single European Act introduced the so-called “Cooperation procedure” (which replaced the “Consultation procedure”) according to which the Council could, 

with the support of the RP and acting on a proposal by the EC adopt a proposal by a qualified majority, or could overrule a rejection of a particular European law 

proposed by the EC by adopting this proposal unanimously. It marked the first step toward power by the EP. Within the context of the Maastricht Treaty (1992), 

the “Cooperation procedure” was replaced by the “Codecision procedure” according to which the Council and the EP jointly adopt legislation based on a proposal 

by the EC. The codecision procedure was amended by the Treaty of Amsterdam (1997) and the number of legal bases where the procedure applied was increased 

by both the Treaty of Amsterdam and the Treaty of Nice (2001). 

31. Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission, O.J.E.U., 

L 184/23. 

32. Art. 3 of Council Decision 1999/468/ EC. 

33. Art. 4 of Council Decision 1999/468/EC. 

34. Art. 5 of Council Decision 1999/468/EC. 

35. The term “basic act” refers to a legal instrument such as a Regulation or a Directive taken by the Council or both Council and EP under of codecision procedure. 



footnote 30), the Comitology Decision enabled the EP to 

adopt a “resolution” in order to indicate that the measure 

exceeded the implementing powers conferred by the basic 

act. The EP issued these resolutions especially in areas in 

which it had an interest in voicing its opinion 36 , given the 

fact that the EP could not oppose directly to these measures 

37 . 

In 2001, the Nice Treaty changed nothing on the level of 

comitology. However, at the same time, a new way of 

legislating and implementing financial services regulations 

followed the recommendations of the Lamfalussy 

Group 38 . This group proposed a more complex consultation 

procedure for the adoption by the EC of implementing 

measures, which included not only a comitology 

committee but also a separate expert advisory committee, 

composed of representatives from national regulatory 

agencies in this expert area 39 . Under this proposal, the EC 

needs to consult with an advisory committee. This 

committee prepares its advice in consultation with market 

practitioners, end-users and consumers and ultimately 

submits its advice to the EC. On the basis of this advice, 

the EC then communicates a proposal to the comitology 

committee. 

Another innovation introduced by the Lamfalussy Group 

was the introduction of the “sunset clause” in the European 

legislation. That clause sets a time-limit for the delegation 

of implementing powers to the EC as the EP 

considered the Comitology Decision not to “preserve its 

legislative prerogatives”. The sunset clause thus became 

the weapon of the EP in order to obtain rights aimed at 

stopping the delegated powers given to the EC. 

The EP decided to introduce a sunset clause (with a timelimit 

of 2 years) within the Audit Directive of 17 th May 

2006 in particular regarding article 48 § 4 of this Directive. 

After this period of 2 years has come to an end, the 

application of those measures shall be suspended. 

However, this article states clearly that the sunset clause is 

not applicable for the implementing measures related to 

the ISAs (laid down in art. 26) 40 . The interpretation 

thereof by the authors of this article is that the EP doesn’t 

intend to create obstacles for the adoption (by the EC) of 

the so-called “<strong>International</strong> Auditing <strong>Standards</strong>”. 

Some solutions to these interinstitutional problems have 

been suggested by the draft European Constitution of 

2004 41 , which hasn’t been accepted in the wake of the 

negative results from the related referenda in the Netherlands 

and in France. In August 2007, the member states 

are still negotiating a new draft Treaty. Nevertheless, after 

it became clear that the draft Constitutional Treaty would 

not enter into force, negotiations had started on a reform 

of the Comitology Decision of 1999. 

5.2. Comitology: A New Procedure Called 

“Regulatory Procedure with Scrutiny” 

On 17 th July 2006, the Council adopted the Decision 

2006/512 42 amending, but not replacing, the 1999 Comitology 

Decision. A new procedure was created, named 

“Regulatory procedure of scrutiny” (art. 5a), giving the 

right for the EP to oppose to the draft measures proposed 

by the EC 43 . 

The formal modification to the Comitology Decision was 

accompanied by a multilateral declaration of the three 

institutions: “Statement by the EP, the Council and the 

Commission concerning the Council Decision of 17 th July 

2006” 44 . The joint Statement’s objective is to apply the 

new regulatory procedure of scrutiny to basic acts that are 

adopted under a regime of codecision and have entered 

into force 45 , such as the Audit Directive 46 . The modification 

to the Audit Directive introducing the new comitology 

procedure for the purpose of adopting the ISAs will 

probably be voted by the EP in November 2007. 

36. J. ALMER, “The reform of Comitology and the Parallel Reform of the European Financial Services Sector”, New Modes of Governance, http://www.eu-newgov.org. 

37. Here lies the difference between the Council and the EP, in the sense that the first can oppose to the EC measures, and the latter can’t. 

38. Final report of the Lamfalussy committee of 15 th February 2001 submitted to the Stockholm European Council (23-24 March 2001) and approved by a Resolution 

of the European Parliament, B5-0173/2001. 

39. For more information about this subject cf. E. GUALANDRI and A.G. GRASSO, “Towards a New Approach to Regulation and Supervision in the EU: Post-FSAP and 

Comitology”, Bank Fin. 2006/3, p. 157. 

40. Art. 26 of the Directive 2006/43/EC. 

41. O.J.E.U., 16 th December 2004, C 310/1, for more information of the solution founded see J.H.H. WEILER and M. KOCJAN, “European Community System: 

Comitology”, Unit 1-3 2004/2005, p. 45-46. 

42. Council Decision of 17 July 2006 amending Decision 1999/468/EC laying down the procedures for the exercise of implementing powers given to the Commission. 

43. Art. 202 of the EC Treaty however does not provide for the EP to participate in the drawing up and adoption of implementing powers. For further information 

see G. SCHUSTERSCHITZ and S. KOTZ, o.c., p. 77-79. 

44. Statement by the European Parliament, the Council and the Commission concerning the Council Decision of 17 July 2006 amending Decision 1999/468/EC laying 

down the procedures for the exercise of implementing powers given to the Commission (2006/512/EC), O.J., C 255/1, 21 October 2006. 

45. Par. 4 of the Statement. In fact, 26 legislative acts will be revised in accordance with the Statement, according to a communication from the EC to the Parliament 

and the Council, COM(2006) 900, 22 December 2006. 

46. Par. 5 (d) of the Statement, COM(2006) 9003, 22 December 2006. 



In response of these measures, the EP agreed to set aside 

the use of the “sunset clause”. In other words, the Council 

and the EP both recognized that, according to the principles 

of good legislation, implementing powers should be 

given to the EC without a time-limit 47 . 

According to article 202 of the EC Treaty, the basic acts 

adopted by the Council, either alone or jointly with the EP 

under the regime of codecision, may contain provisions 

conferring the power to implement measures on the EC 

and defining the procedures thereto. 

In the context of the ISAs, the basic act is the Audit Directive, 

which confers on the EC implementing powers to 

adopt the ISAs (art. 26) in accordance with the comitology 

procedure. Furthermore, the EC can dispose of the 

assistance of a committee. According to article 48 (1) the 

“Audit Regulatory Committee” (AuRC), composed of the 

representatives of the member states and chaired by the 

EC, has been set up. 

According to the comitology procedure, it is mandatory 

for the EC to consult with the AuRC in relation to the 

adoption of ISAs. The AuRC is then expected to form an 

opinion on the measures proposed by the EC. 

The Audit Directive also introduces a requirement for 

member states to organize an effective system of public 

oversight for statutory auditors and audit firms and to 

establish co-ordination of public oversight systems at the 

community level 48 . 

In order to reach the goals outlined in the Audit Directive, 

the EC needed to call upon an expert group, which would 

contribute to the co-ordination and the development of 

public oversight systems within the EU as well as to the 

technical preparation of the implementing measures 49 . 

Following the Decision of 14 December 2005 50 , the EC 

set up a “European Group of Auditors Oversight Bodies” 

(EGAOB). The EGAOB is composed of high-level representatives 

from the entities responsible for public oversight 

of statutory auditors and audit firms in member 

states or, in their absence, of representatives from the 

competent national ministries 51 . Only non-practitioners 

are allowed to become members of the EGAOB. 

The EC may consult with this group on any question 

relating to the preparation of implementing measures 

provided for by the Audit Directive 52 . 

Furthermore the task of this group is to: 

“... contribute to the technical examination of international 

auditing standards, including the processes for their 

elaboration, with a view to their adoption at the community 

level” 53 . 

The EGAOB also created a sub-group dealing with ISAs, 

namely the “ISA sub-group” 54 . The objective of this 

subgroup is to provide technical expertise to the EGAOB 

and the EC on items and issues encompassing the need to 

consider the drafting, the adoption, and the use of ISAs, 

and to allow the EC to provide for a proactive input into 

the standard setting process set up within the IAASB. A 

small delegation of practitioners is regularly invited to the 

meetings of EGAOB’s ISA Subgroup, e.g. representatives 

from the European Federation of Accountants (FEE). 

5.3. Differences Between the Extant and the New 

Regulatory Procedure 

The first difference between the extant regulatory procedure 

and the new “regulatory procedure with scrutiny” is 

the fact that the latter is compulsory 55 in the following 

cases: 

– the implementation of acts adopted under the regime 

of co-decision (art. 251 of the EC Treaty); 

– the adoption of measures of a general scope; and 

– the adoption of measures designed to amend non-essential 

elements of a basic act, inter alia, by deleting 

some of those elements or by supplementing the basic 

act by adding new non-essential elements, namely 

“quasi-legislative” measures. 

Of course, the EP would be tempted to define the quasilegislative 

category as broadly as possible, given the fact 

that this will result in more extensive scrutiny rights 56 and 

47. Par. 3 of the Statement. 

48. Art. 33 of the Audit Directive. Recital 1 of the Commission Decision of 14 December 2005. 

49. Recital 2 of the Commission Decision of 14 December 2005. 

50. Commission Decision of 14 December 2005 setting up a group of experts to advise the Commission and to facilitate cooperation between public oversight systems 

for statutory auditors and audit firms, O.J.E.U., L 329/38. 

51. Art. 3 of the Commission Decision of 14 December 2005. 



54. Art. 4 (3) of the Commission Decision of 14 December 2005 

55. Recital 5 and art. 2 § 2 of the Comitology Decision and recitals 6 and 7 of the Comitology Decision. This is also reflected in the use of the imperative “shall be 

adopted” in the art. 2 § 2, as opposed to “should be adopted” in the § 1. 

56. T. CHRISTIANSEN and B. VACCARI, o.c., p. 15; for a definition of “quasi-legislative” measure, see G. SCHUSTERSCHITZ and S. KOTZ, o.c., p. 81. 



thus in extended powers for the EP aimed at exercising 

control on the implementing measures taken by the EC. In 

order to avoid more discussion on the topic, the Statement 

of 17 th July 2006 clarifies that some basic acts, including 

the Audit Directive, will need to be modified in order to 

provide for the new regulatory procedure. 

The second difference with the new regulatory procedure 

is the right for the EP to oppose to the draft measures 

proposed by the EC. 

Table 3: Regulatory Procedure with Scrutiny 

5.4. The Different Stages of the Regulatory 

Procedure with Scrutiny 

The regulatory procedure with scrutiny provides for two 

separate stages (cf. table 3): 

– an executive stage in which the EC submits its draft 

measures to the Committee who forms its opinion 

thereon; and 

– a supervisory stage during which draft measures are 

submitted to the EP as well as to the Council. 



During the executive stage, there are two possible 

scenarios. 

The first scenario deals with a positive opinion on the 

draft measures proposed by the EC 57 . These measures are 

submitted to the Council and the EP who both can object 

thereto 58 within a period of three months. 

Both institutions have to justify their objection, if any, 

thereby indicating that the draft measures proposed by the 

EC 59 : 

a) exceed the implementing powers provided for by the 

basic act; or 

b) are not compatible with the aim or the content of the 

basic act; or 

c) do not respect the principles of subsidiarity or proportionality. 

An objection for political reasons, for instance in order to 

achieve compromises with regard to other issues, is therefore 

not possible 60 . In the case of an objection, the EC has 

three possibilities: 

a) to make a new (and modified) proposal under the 

comitology procedure; 

b) to leave the comitology procedure and to present a legislative 

proposal to the EP and Council on the basis of 

the EC Treaty; or 

c) to drop the proposal. 

If neither the Council nor the EP object to these measures, 

the EC is free to adopt those. 

The second scenario deals with a negative opinion or with 

the absence of such an opinion from the Committee. The 

proposal is subject to the decision of the Council and will 

be sent to the EP, for information purposes. If the Council 

objects to the proposed measures within a subsequent 

period of two months, there is no possibility for the EC to 

adopt the draft measures. In these cases the EC faces the 

three possibilities described in the first scenario. 

If the Council approves the proposal, or at least does not 

oppose to it, the EP has the right to oppose to the proposal 

provided it justifies its opposition thereto. 

The new procedure, rather than providing for a simplification 

of comitology, significantly increased the 

complexity of comitology, a system that was already 

known for its lack of simplicity. 

Most importantly, the procedure of implementing measures 

will take a significantly longer time to be executed 61 . 

5.5. Article 8 of the Comitology Decision 

Regardless of the existence of “scrutiny right” following 

the new comitology procedure, the EP preserves its right, 

according to article 8 of the Comitology Decision, to issue 

a Resolution, in order to indicate that the draft implementing 

measures of the EC exceed the implementing 

powers of the EC provided for in the basic act. 

Article 8 must be read in relation to Rule 81 of Parliament’s 

Rules of Procedure 62 . The latter states that the EP 

may adopt a Resolution in relation to all draft implementing 

measures and without prejudice to their time of 

adoption. One of the most important aspects is the fact 

that the EP can make general objections to the draft which 

are not necessarily restricted to situations where the EC 

has exceeded its implementing powers. 

Nevertheless, such a Resolution is solely based on Parliament’s 

internal procedural rules and therefore does not 

impose any obligation on the EC, not even an obligation 

to re-examine the draft measures in the light of the Resolution. 

A resolution only represents a political message 

requesting the EC to react in a certain way, and has no 

legally binding effect 63 . 

Before the reform of the Comitology Decision in 2006, 

this rule provided for the only way for the EP to scrutinize 

the implementing powers of the EC. In many cases, the EP 

has adopted such a Resolution, following the Comitology 

Decision of 1999. The measure of “last resort” for the EP 

is a more rigorous legal action, for example, an action for 

annulment before the European Court of Justice in the 

57. This positive opinion is being taken with a qualified majority of the members of the committee. 

58. The Council can object by a qualified majority and the EP, by a majority of its members. 

59. Art. 5(a) par. 4(e) of the Comitology Decision. 

60. Nevertheless, the EP can camouflage political reasons by legal arguments, G. SCHUSTERSCHITZ and S. KOTZ, o.c., p. 84. 

61. T. CHRISTIANSEN and B. VACCARI, o.c., p. 15. 

62. Rules of Procedure of the European Parliament, December 2006 of the Resolution on the agreement between the European Parliament and the Commission on 

procedures form implementing Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on 

the Commission. The Resolution is annexed to the Inter-institutional agreement of 2000. 

63. P. LINTNER and B. VACCARI, “The European Parliament’s Right of Scrutiny over Commission Implementing Acts: A Real Parliamentary Control?”, EIPASCOPE 

2005/1, p. 17. 



case of implementing measures proposed by the EC not 

being in conformity with the basic act 64 . 

6. The Adoption of the ISAs: 

The Audit Directive 

6.1. Article 26 of the Audit Directive 

According to article 26 (1) of the Audit Directive, member 

states may apply a national auditing standard as long as 

the EC has not adopted an international auditing standard 

covering the same subject matter. 

When the EC will adopt the ISAs, all standards related to 

the same subject matter dealt with by the ISAs are no 

longer applicable. However, member states always 

dispose of the possibility to adopt a standard on a subject 

matter that is not related to an ISA adopted by the EC. 

According to article 26 (3-4) of the Audit Directive, 

member states may impose audit procedures or requirements 

in addition – or in exceptional case, by carving out 

parts of – the ISAs, and only: 

– if the procedures or requirements have not been covered 

by adopted ISAs65 ; 

– if these stem from specific national legal requirements 

relating to the scope of statutory audits, meaning that 

those 

comply with a high level of credibility and quality 

to the annual or consolidated accounts in conformity 

with the principle of true and fair view and with 

the European public good; 

shall be communicated to the EC and the member 

states before their adoption 66 . 

The Directive also provides for a time-limit for the 

member states to impose these additional requirements 

(but not for the carves out): 29 June 2010 67 . 

If the adopted international auditing standards contain 

audit procedures that would create a specific legal conflict 

with national law, stemming from specific national 

requirements related to the scope of the statutory audit, 

member states may carve out the conflicting part of the 

international auditing standard as long as these conflicts 

exist 68 , provided that: 

– they communicate the specific national legal requirements, 

as well as the ground for maintaining them, to 

the EC and the other member states at least six months 

before their national adoption, or in the case of requirements 

already existing at the time of adoption of 

an international auditing standard, at the latest within 

three months of the adoption of the relevant ISA 69 ; 

– the carve-outs comply with a high level of credibility 

and with the European public good 70 . 

We believe that carve-outs provide for a dangerous tool in 

the context of the harmonisation of auditing standards 

within the EU 71 . 

The objective for the EC is to analyze the content of the 

ISAs in order to determine whether the conditions specified 

by the Audit Directive have been met, e.g. the fact 

whether these standards “are conducive to the European 

public good” (cf. supra, par. 5.1). In August 2007, the EC 

launched a tender to create a study 72 regarding a cost/ 

benefit analysis related to a possible implementation of 

ISAs as well as a study on the differences between the 

“clarified ISAs” and the PCAOB Auditing <strong>Standards</strong>. 

6.2. Article 28 (2) of the Audit Directive 

As long as the EC did not adopt ISAs 700 and 701 relating 

to the auditor’s report, the Directive confers the power on 

the EC to adopt a common standard for audit reports for 

(annual or consolidated) accounts which have been 

prepared in accordance with IFRS as adopted by the EU 73 . 

Firstly, this option for the EC could provide for the creation 

of an auditor’s report for financial statements 

64. In the Report 2005, the EP has used this power to adopt two Resolutions in which it claimed that the EC exceeded the implementing powers conferred on it when 

adopting specific implementing measures. Furthermore, we can also see that EC brought action against the EC before European Court of Justice claiming annulment 

of a Commission Decision, Case-law “DecaBDE”, Report from the commission on the working of committees during 2005, SEC(2006)1065; see also P. 

LINTNER and B. VACCARI, o.c., p. 15-25. 

65. Recital 13 of the Audit Directive 

66. Art. 26 (3) of the Audit Directive 






72. The Tender can be consulted on the following section regarding the Official Journal of the European Union: 

ted.europa.eu/Exec;jsessionid=2D70FBBE8401C0CA0C625F79C7DA78D1.instance_2?DataFlow=ShowPage.dfl&Template=TED/N_one_result_detail_curr.htm 

&docnumber=191087-2007&docId=191087-2007&StatLang=EN. 

73. Art. 28 (5) of the Audit Directive. 



prepared in accordance with IFRS that could be different 

from the auditor’s report on other financial statements 

prepared in accordance with a financial reporting framework, 

other than IFRS as adopted by the EU. If so, will an 

audit still be an audit? 

Secondly, the ISAs are to be considered as a set of standards, 

as ISAs build on each other, starting with the ISAs on 

the auditor’s responsibilities (ISA-series 200-260) and 

ending with the ISAs on reporting by the auditor (ISAseries 

700-805). 

Thirdly, ISA 700 clearly states that in order to report on 

the true and fair view of the financial statements in 

accordance with ISAs, all ISAs should be applied during 

the audit. 

Therefore, not adopting even one ISA within the European 

context would necessarily lead to the non-adoption 

of ISA 700. One might question such a “non-adoption” 

by the EC, in the context of the objective of the Audit 

Directive to quest for a high level of quality of all statutory 

audits within the EU, including the audit of financial 

statements of small entities. 

7. Others Matters Related to the Adoption 

of ISAs 

7.1. ISAs as Part of a Legal System 

The most important change regarding the adoption by the 

EC of ISAs is the fact that these standards will become 

part of a legal system. However, ISAs aren’t drafted from 

a legislative point of view. It is of course of paramount 

importance for the EC to communicate its comments as 

early as possible to the IAASB. It is essential for the EC 

that ISAs do not interfere with corporate law applicable in 

the individual jurisdictions, such as European or national 

company law 74 . 

7.2. Conflicts of Law 

The Audit Directive provides for the possibility to carve 

out parts of ISAs for an indeterminate period 75 in case of 

a conflict of law (cf. infra, par. 10). Carve-outs will impair 

the credibility of auditing standards as well as the harmonization 

of auditing standards on a European level. 

7.3. Status of the Application Material 

Following the “Clarity Project” of the IAASB, ISAs are 

restructured in order to incorporate an Objective, a 

Requirements section and an Application Material section 

(cf. infra, par. 3). The authority of the Application Material 

is described in paragraph 22 of the proposed redrafted 

preface of ISAs: 

“While the professional accountant has a responsibility to 

consider the whole text of a standard, such guidance is not 

intended to impose a requirement for the professional 

accountant to perform the suggested procedures or 

actions.” 

According to the authors of this article, the adoption of 

ISAs in the EU should not change the authority of the 

Application Material. 

Furthermore, the text of an ISA should be read as a whole, 

including the application material, in order to create a 

consistent application of ISAs within the EU. 

7.4. Translation Process 

Under the new system, the EC has to transmit to the EP all 

linguistic versions of the draft measures before the scrutiny 

rights become applicable, following the new Rule 81 

of the EP’s Rules of procedures 76 . This will unavoidably 

increase the timeframe within which an ISA will be 

adopted, by several months. 

It is expected that the EC will establish translations of 

ISAs, in cooperation with the services offered by DG 

Translations. We welcome the actual ideas favoring the 

extension of this cooperation to “experts” on the translation 

of ISAs and would like to refer to the already existing 

list of key terms for some translation projects, such as the 

translation projects from the Belgian Institut des Réviseurs 

d’Entreprises / Instituut van de Bedrijfsrevisoren, 

regarding the French and Dutch language in cooperation 

with the Compagnie Nationale des Commissaires aux 

Comptes (CNCC, France) and the Royal NIVRA (Netherlands). 

The translations of the extant ISAs are freely 

available to the public on the website www.ibr-ire.be/ 

documentatie/vertaling ISAs (Dutch) or www.ibr-ire.be/ 

documentation/traduction des normes ISA (French). 

The most important contribution of these projects is to 

create a common vocabulary per language for use within 

74. Comment on Exposure Drafts “Improving the Clarity of IAASB <strong>Standards</strong>”, October 2005, http://ec.europa.eu:internal_market/auditing/committee/ 

index_en.htm. 

75. Art. 26 (3) of the Audit Directive. 

76. Rules 81 (4a) of procedures revised on 14 December 2006. 



the EU, in order for professionals from different countries 

sharing the same official language (e.g. French for 

France, Belgium and Luxembourg; Dutch for the Netherlands 

and Belgium) to understand and correctly apply 

the ISAs. 

Conclusion 

The European Commission (EC) pointed out the need for 

high quality in all statutory audits required by Community 

law in order to contribute to the prevention of corporate 

and financial malpractice. For that purpose, the Audit 

Directive approved by the EP and the Council in 2006 

states clearly that all statutory audits be carried out on 

basis of international standards on auditing. 

The Audit Directive reflects a principles-based approach 

on auditing matters and aims at reinforcing and harmonising 

the statutory audit function throughout the EU, 

thereby reinforcing the confidence in the functioning of 

the European capital markets. To that extent, the Directive 

enforces the use of ISAs for all statutory audits to be 

conducted in the EU. For the ISAs to become part of a 

legal system, the EC has to apply the new “Comitology 

procedure”. This procedure sets out the authority of the 

EC, the European Parliament and the Council for taking 

the necessary implementation measures in order to adopt 

the ISAs for all statutory audits to be performed within 

the European Union (EU). 

On 17 th July 2006, a new procedure was created, named 

“Regulatory procedure of scrutiny”. When the new 

Comitology Procedure will be in place, European Parliament 

will dispose of a so-called “scrutiny” right, whereby 

it will be possible to intervene when the EC makes use of 

its implementing powers conferred by the Audit Directive. 

This article clarifies in what part of the Comitology procedure 

such a “scrutiny” right will be important. 

ISAs are subject to a “clarification” project of the <strong>International</strong> 

Auditing and Assurance <strong>Standards</strong> Board (IAASB), 

which is one of the most important committees of the 

<strong>International</strong> Federation of Accountants, as well as a 

private body setting international standards. The socalled 

“clarity project” is an ambitious program designed 

by the IAASB in order to clarify what exactly is required 

by the ISAs, which purposes are being envisaged within 

the ISAs and how the required audit procedures could be 

applied in different circumstances of the audit engagement. 

The authors of this article deem it of paramount importance 

for the EC to finally adopt the whole set of clarified 

ISAs for use within the European union, in order to 

achieve a maximum degree of harmonization as envisaged 

by the Audit Directive.

International Standards on Auditing within the European Union

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