EY - EU audit legislation

EU audit legislation

Is my company covered by the baseline EU PIE definition?

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Click on the questions below for further explanation.

  • Where are you governed, and where are your securities issued and admitted?

    a. Are you governed by the law of an EU Member State?

    • References to companies that are “governed by the law” of a Member State are understood to mean companies that are legally incorporated in that Member State.
    • In some civil law regimes, domestic provisions mean that corporate law applies to companies that have their operational headquarters in that country, even though that company is incorporated elsewhere. Any company to which such a provision applied would also be regarded as governed by the laws of that Member State.
    • Note that some uncertainty remains around the meaning of “governed by the law.” The interpretation above should be treated as draft and will be updated as more information becomes available.

    b. Have you issued transferable securities?

    • Transferable securities are classes of securities that are negotiable on the capital market, with the exception of instruments of payment.
    • For a definition, see Appendix 1.

    c. Are the transferable securities admit “regulated marketed” to trading on a in an EU Member State?

    • Regulated markets are defined in point 14 of Article 4(1) of Markets in Financial Instruments Directive (MiFID). Not all markets in the EU fall within this definition. For a definition and a list of Regulated Markets, see Appendix 2.

    If the answer to (a), (b) and (c) is yes, you are an EU PIE. If the answer to any of (a), (b) or (c) is no, go to the next question.

  • Are you a “credit institution”?
    • A credit institution is an undertaking, the business of which is to take deposits or other repayable funds from the public and to grant credits for its own account.
    • Note that the EU audit legislation excludes from the EU PIE definition certain credit institutions. For a list and definition, see Appendix 3.

    If yes, you are an EU PIE. If no, go to the next question.

  • Are you an “insurance undertaking”?
    • An insurance undertaking includes:
      • Direct insurers
      • Life insurers
      • Undertakings carrying on reinsurance business
    • Insurance broking is not within the definition, but a group “captive” insurer would be if it was established in the EU.
    • For a definition, see Appendix 4.

    If yes, you are an EU PIE. If no, go to ‘EU Member States’.

    Even if the answer to any of the questions in this section is no, you could still be a PIE depending on how the Member State in which you are located has implemented the EU PIE definition. See EU Member States'.

Considerations for branches and funds

As explained above, credit institutions and insurance undertakings in the EU are PIEs. Where an EU credit institution or an EU insurance undertaking has branches anywhere inside the EU, the European Commission has said that these will not qualify as EU PIEs. However, we recommend companies exercise caution and seek advice.

In the Commission’s original proposals, AIFs and Undertakings for Collective Investments in Transferable Securities (UCITS) were included in the new PIE definition. However, as part of the EU legislative process, AIFs and UCITS were removed from the final PIE definition. However, where an AIF or UCITS is governed by the law of an EU Member State and has transferable securities admitted to trading on a regulated market in the EU, they will still be PIEs.

Final word: other PIE definitions exist

Other, different PIE definitions exist around the world, notably that of the International Ethics Standards Board for Accountants (IESBA). The IESBA PIE definition is broader than the EU definition because it includes all listed companies (regardless of whether their securities are admitted to trading on a regulated market or not).

However, the impact of being a PIE under the IESBA definition is considerably less onerous than the EU equivalent. Outside the EU, the IESBA definition will continue to apply unless a non-EU country has its own stricter PIE definition. Inside the EU, the EU PIE definition will apply.

For the reasons stated above, a company that is already an IESBA PIE inside the EU might not automatically be an EU PIE. In this scenario, they would not have to comply with the EU legislative requirements that apply to EU PIEs only, but they would still have some obligations as an IESBA PIE (such as mandatory audit partner rotation).

Note: Information as of October 2014