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European Union's 8th Directive
The 8th EU Directive, also known as the audit directive or Euro SOX, regulates the
auditing of financial statements in the European Union (EU). Its aim is to ensure
that investors and other interested parties can rely fully on the accuracy of audited
financial statements, thereby helping to prevent corporate scandals in the EU. Its
similarity to the Sarbanes-Oxley Act (SOX) in the U.S. explains why the directive is
often referred to as Euro SOX. EU member states were required to translate it into
national law by June 29, 2008.
The 8th EU Directive sets out the duties of auditors and defines certain professional
principles to ensure their impartiality and independence. It calls for external
quality control, robust public scrutiny of the auditing profession, and improved
cooperation between the responsible EU entities. In addition, international
accounting standards must be applied to all audits conducted within the EU,
thus laying the foundation for balanced effective international cooperation with
regulatory authorities of non-EU countries, such as the US-based Public Company
Accounting Oversight Board (PCAOB).
Where public interest entities are concerned, only article 41 (para. 2) of the directive
is directly relevant, under which the audit committee is obliged to:
"(a) monitor the financial reporting process;
(b) monitor the effectiveness of the internal control system (ICS), internal audit
system where applicable, and risk management system;
(c) monitor the statutory audit of the annual and consolidated accounts."
The Directive requires the use of international accounting standards (IAS, IFRS,
SIC/IFRIC). There is no prescribed procedure similar to that defined in section 404
of the Sarbanes-Oxley Act.
Financial Instruments and Exchange Law
(Japan SOX)
The internal control portions of the FIEL were largely enacted in response to
corporate scandals such as the Kanebo, Livedoor, and Murakami Fund episodes.
The Internal Control Committee of the Business Accounting Council of the
Japanese Financial Services Agency provided final Implementation Guidance for
Management Assessment and Audit of Internal Controls over Financial Reporting
(ICFR) in February 2007. The Implementation Guidance provides details to Japanese
companies on how to implement a Management Assessment of Internal Control over
Financial Reporting as required under the Financial Instruments and Exchange Law.
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