New EU members no bar to US deal on auditing, says Schaub

Date: 25/03/04

By Peter Chapman

THE quality of financial supervision in the EU's influx of ex-Communist-bloc states should not harm a deal on auditing oversight with the US, the Union's top financial services official has insisted.

Alex Schaub, director-general of the European Commission's internal market directorate general, said there is no evidence to suggest that the new members will be bottom of the class when it comes to implementing the Union's gamut of complex financial rules and regulations.

In private, some accounting and auditing experts worry that levels of state oversight and industry self-regulation in cash-strapped new member states could lag behind the rest of the EU.

But speaking exclusively to European Voice, Schaub said: “I believe that they are making very intensive efforts to master their difficulties. It has become a question of pride and self-regard.”

Officials from director-general down to desk officer had worked “intensively” with the new member states to ensure that the rules there are the same as the ones in the current 15 countries, he added.

The German admitted that it was impossible “to exclude some problems”. But even if a major scandal arises in a new member state, Schaub said it would be unfair to “be shocked or scandalized”, particularly after recent events in Italy - where the collapse of milk giant Parmalat had financial markets twitching nervously.

Schaub's comments follow the Commission's adoption last week of strict new proposals on auditing procedures for listed companies.

The key law, known as the 'Eighth company law directive' is seen as a counterweight to the US' Sarbanes Oxley act, which sets strict controls on auditors from outside the US which oversee the accounts of companies traded on American markets.

Crucially, the directive has a section that imposes similar restrictions on auditors from third countries, unless regulators from both blocs can agree to recognize the quality of their financial oversight.

William McDonough, chairman of the US' Public Company Accounting Oversight Board, is in Brussels today (25 March) to give his EU counterparts an outline of how this reciprocity will work in practice between the world's biggest trade blocs.

Any final deal on reciprocity depends on the support of Congress in the US and the Council of Ministers and European Parliament, in the EU.

However, Schaub doubted that the situation in the EU's newest countries is currently even on the radar screen of McDonough, a former central banker and head of the Basel-based Bank for International Settlement.

“I don't think he is at that level of sophistication [on this issue],” said Schaub, pointing out that the Commission has only just unveiled its auditing proposals.

Meanwhile, Schaub, a former head of the Commission's competition department, said his positive verdict of new member states also applied to their preparations in other parts of the Union's internal market rule book, despite EU concerns that some laws have not been translated into local languages.

“In their typical arrogance, the existing members see the new countries as dumb and incompetent,” he said.

But he noted that some of the so-called pioneer states, such as Germany and France often trail far behind newer members, such as Finland, at the bottom of the Union's internal market scoreboard - an indicator of implementation of rules in the sector.

This trend, he said, is likely to continue post-May.

“My courageous forecast is you will not find 'incompetent new states' at the bottom of the list. I believe you will find a much more mixed picture.”