A (Cooling-off period for the engagement of former auditors by the audited company - Opinion) [2020] EUECJ C950/19_O (10 December 2020)

A (Cooling-off period for the engagement of former auditors by the audited company - Opinion) [2020] EUECJ C950/19_O (10 December 2020)

The key audit partner takes up a key management position in the audited company when he signs the contract of employment for that position, even if he does not actually commence employment until a later date. This interpretation is necessary to safeguard both the actual and perceived independence of auditors, as the existence of a contractual relationship itself creates a conflict of interest that undermines public confidence in the audit process.

Citation
[2020] EUECJ C950/19_O
Parties
Applicant: A; Intervener: Patentti- ja rekisterihallituksen tilintarkastuslautakunta
Jurisdiction
European Union
Procedural Posture
Preliminary Ruling (opinion) / Opinion of Advocate General
Outcome
Interpretation provided (Opinion of Advocate General): Article 22a(1)(a) of Directive 2006/43/EC means a key audit partner takes up a key management position upon signing the employment contract, regardless of when employment actually commences.
Legal Topics
Auditor Independence, Statutory Audit, Cooling Off Period, Conflict of Interest, Corporate Governance
European Union Law Company Law Financial Regulation Auditor Independence Statutory Audit Cooling Off Period Conflict of Interest Corporate Governance

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Parties

A

Applicant

Patentti- ja rekisterihallituksen tilintarkastuslautakunta

Intervener

Procedural Posture

Preliminary Ruling (opinion) / Opinion of Advocate General

Legal Issues

  1. 1 At what point does a key audit partner 'take up' a key management position in the audited entity under Article 22a(1)(a) of Directive 2006/43/EC? Is it upon signing the employment contract or upon commencing employment?

Ratio Decidendi

The key audit partner takes up a key management position in the audited company when he signs the contract of employment for that position, even if he does not actually commence employment until a later date. This interpretation is necessary to safeguard both the actual and perceived independence of auditors, as the existence of a contractual relationship itself creates a conflict of interest that undermines public confidence in the audit process.

Court Disposition

Interpretation provided (Opinion of Advocate General): Article 22a(1)(a) of Directive 2006/43/EC means a key audit partner takes up a key management position upon signing the employment contract, regardless of when employment actually commences.