Spacer Home | Contact | Site Map | Help Commission Logo
Commission Logo
Menu Top
The Commission Registry Banking Funds Insurance Investment Business Trust Companies Money Service Business Anti-Money Laundering
Menu Bottom
   Home > The Commission > Recognized Auditors > General Information

RECOGNIZED AUDITORS

General Information

The information on this page became valid on 5 April 2010 when Regulation 4 of the Companies (Amendment No.4) (Jersey) Regulations 2009 came into force and inserted a revised Part 16 [Accounts and Audits] into the Companies (Jersey) Law 1991
(the “Companies Law”). Unless stated otherwise, all references on this page to “Articles” are references to Articles in that revised Part 16 of the Companies Law.

Requirement for a company to appoint an auditor

Article 113(1) requires a company to appoint an auditor to examine and report in accordance with the Companies Law upon its accounts if: it is a public company; its articles so require; or a resolution of the company in general meeting so requires.

If the company is a ‘market traded company’ (see below), Article 113(2) requires the auditor that is appointed to be a ‘Recognized Auditor’. Article 102 defines a ‘Recognized Auditor’ as a firm or individual whose name appears on the Register of Recognized Auditors, which is kept by the Commission.

A ‘market traded company’ is defined in Article 102.  In summary, it is a company whose transferable securities have been admitted
to trading on a European Economic Area (“EEA”) regulated market (within the meaning of Article 4.1 (14) of European Union Directive 2004/39/EC) or a company in respect of which transferable securities (for example, depository receipts) have been admitted to trading on an EEA regulated market. The European Securities and Markets Authority maintains a database of EEA regulated markets. (Note that the EEA consists of all European Union countries plus Iceland, Liechtenstein and Norway.) Two types of company are excluded from the definition of market traded company. The first is a company whose transferable securities admitted to trading on an EEA regulated market are debt instruments which have a minimum denomination of €100,000 (or equivalent) per unit (the minimum denomination figure is reduced to €50,000 if the securities were admitted to trading prior to 31 December 2010). The second is an open-ended investment company which is: regulated under the Collective Investment Funds (Jersey) Law 1988; or an unregulated fund within the meaning of the Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008.

The criteria to be met to become a Recognized Auditor

As referred to above, Article 102 defines a ‘Recognized Auditor’ as a firm or individual whose name appears on the Register of Recognized Auditors, which is kept by the Commission.

In summary, for an individual or a firm to have their name entered on the Register of Recognized Auditors, three key criteria must
be met:

  1. The individual or firm must satisfy the definition of ‘auditor’ in Article 102;
  2. The auditor must be bound by rules that govern the conduct of the audit of market traded companies (Article 112(1)); and
  3. The auditor must have made a successful application to the Commission to have its name entered on the Register of Recognized Auditors (Article 111(1)). The Commission may refuse registration if it is satisfied that the auditor is not competent to act as a Recognized Auditor (Article 111(2)).

More information on each criterion is set out below.

Criterion 1: Satisfy the definition of ‘auditor’ in Article 102

To satisfy the definition of ‘auditor’ in Article 102 an individual or a firm (in the form of a partnership or a body corporate) must meet certain qualification criteria.

Individuals

Where the auditor is an individual he or she must be a member of a ‘recognized professional body’ (see below) and permitted by that body to engage in public practice.

‘recognized professional body’ is defined in Article 102 and means any of the following:

  • the Institute of Chartered Accountants in England and Wales;
  • the Institute of Chartered Accountants of Scotland;
  • the Association of Chartered Certified Accountants;
  • the Institute of Chartered Accountants in Ireland.

Partnerships

The partnership must be a ‘qualified partnership’ (see below) and each of the persons who is responsible to it for examining or reporting on the accounts of a (Jersey) company (i.e. the individuals who sign audit reports pursuant to Article 113A) must be an individual who is a member of a recognized professional body and is permitted by that body to engage in public practice.

‘qualified partnership’ is defined in Article 102. It is a partnership –

(a) in which more than half of its partners are any of, or any combination of, the following:

(i) individuals who are members of recognized professional bodies,
(ii) partnerships that are themselves auditors as defined in Article 102,
(iii) bodies corporate that are themselves auditors as defined in Article 102,
(iv) individuals who hold a qualification to audit accounts under the law of a European Economic Area
     Member State other than the United Kingdom (the “UK”) or the Republic of Ireland (the “ROI”); and

(b) in which more than half of the voting rights in the partnership and, if it has a management body, in that body are      held by persons specified in paragraph (a) above.

Bodies corporate

The body corporate must be ‘controlled by auditors’ (see below) and each of the persons who is responsible to it for examining or reporting on the accounts of a (Jersey) company (i.e. the individuals who sign audit reports pursuant to Article 113A) must be an individual who is a member of a recognized professional body and is permitted by that body to engage in public practice.

‘controlled by auditors’ is defined in Article 102. A body corporate is ‘controlled by auditors’ where –

(a) individuals who are members of a recognized professional body, or partnerships or bodies corporate which meet      the definition of ‘auditor’ (as described above);
(b) partnerships accepted by a recognized professional body as being qualified for appointment as auditors
     of companies incorporated in the UK;
(c) bodies corporate accepted by a recognized professional body as being qualified for appointment as auditors of      companies incorporated in the UK;
(d) individuals who hold a qualification to audit accounts under the law of a European Economic Area Member State      other than the UK or the ROI,

or any combination of the above –

(i) constitute more than half the number of members of the body corporate;
(ii) hold more than half of the voting rights of each class of members of the body corporate;
(iii) who are individuals, make up more than half of the number of directors of the body corporate; or
(iv) hold more than half of the voting rights in the board of directors, committee or other management body of the
     body corporate.

Criterion 2: Bound by rules that govern the conduct of the audit of market traded companies

Article 112(1) states that an auditor is qualified to be a Recognized Auditor if the auditor is bound by rules governing the conduct of the audit of market traded companies issued by a recognized professional body and approved by the Commission.

The Commission has approved rules which have been issued by the Institute of Chartered Accountants in England and Wales (the “ICAEW”). The rules are common to auditors of market traded companies in Jersey, Guernsey and the Isle of Man and, accordingly, are titled the, “Crown Dependencies’ Audit Rules” (the “Audit Rules”). They are based on similar rules that apply to statutory auditors in the UK.

When making an application to be entered on the Register of Recognized Auditors an auditor must agree to be bound by, and comply with, the Audit Rules at all times. Once an auditor is registered as a Recognised Auditor, rule 2.06 of the Audit Rules places an ongoing obligation on the auditor to meet the requirements of the Audit Rules. A breach of the Audit Rules may result in the Recognized Auditor being subject to regulatory or disciplinary action by the ICAEW under Chapters 7 or 9 of the Audit Rules. In addition, a breach of the Audit Rules is one of the grounds on which the Commission may suspend or revoke the registration of a Recognized Auditor (Article 111(5)).

Criterion 3: Make a successful application to the Commission

Article 111(1) provides that auditors who, under Article 112, are qualified to be Recognized Auditors may apply to have their name entered on the Register of Recognized Auditors by applying to the Commission in the manner published by the Commission and by paying the published fee.

The Commission may refuse, pursuant to Article 111(2), to enter the name of an auditor on the Register of Recognized Auditors if it is satisfied that the auditor is not competent to act as a Recognized Auditor. Article 111(3) provides that when entering the name of an auditor on the Register of Recognized Auditors (or at any subsequent time) the Commission may make the auditor’s registration subject to such conditions and limitations as it considers appropriate.

A copy of the application form can be downloaded by clicking here. Details of the application fee payable by an auditor (and the annual registration fee payable by auditors entered on the Register of Recognized Auditors) can be viewed by clicking here.

If an application is successful, the auditor’s name will be entered on the Register of Recognized Auditors that is published on the Commission’s website. Click here to view the Register.

Ongoing statutory obligations

The Companies Law places a number of obligations on auditors of Jersey companies and auditors should ensure that they are
familiar with them.

Having said that, the Commission would like to draw to the attention of applicants to be Recognized Auditors, and to auditors
who have been entered on the Register of Recognized Auditors, two particular statutory obligations that they have.

The first obligation is set out in Article 111(16). This requires an auditor to inform the Commission of any material change in any information that was supplied by the auditor to the Commission:

(a) at the time the auditor applied to become a Recognized Auditor; or
(b) at any subsequent time in compliance with Article 111(16).

If the auditor fails to do so as soon as practicable, but in any event within one month of the change, the auditor and each
officer of the auditor in default commits a criminal offence.

Note: To comply with Article 111(16), a Recognized Auditor is required to notify the Commission of, amongst other things,
any changes to the list of market traded companies that it audits. However, Crown Dependencies’ Audit Rule 2.09.1 similarly
requires a Recognized Auditor to notify the Institute of Chartered Accountants in England and Wales (“ICAEW”) of any changes
to the list of market traded companies audited. In order to avoid a duplicate notification requirement, Recognized Auditors
need notify only the ICAEW of changes to the list of market traded companies audited and not also the Commission.
Such notifications to the ICAEW will be deemed by the Commission to satisfy the requirements of Article 111(16).

Recognized Auditors should send notifications of changes to the list of market traded companies audited to:

The Practice Regulatory Manager
Professional Standards
ICAEW
Metropolitan House
321 Avebury Boulevard
Milton Keynes
United Kingdom
MK9 2FZ

The second statutory obligation is set out in Article 4 of the Companies (Audit) (Jersey) Order 2010. This requires a Recognized Auditor to give to the Commission on or shortly before each anniversary of the entry of the name of the auditor on the Register
of Recognized Auditors, written confirmation that the entry remains correct. Failure to do so constitutes a criminal offence.

Monitoring compliance with the Audit Rules

The ICAEW and, in certain cases, the Audit Quality Review (“AQR”) team (part of the UK’s Financial Reporting Council (“FRC”)),
carry out periodic inspections of Recognized Auditors to monitor their compliance with the Audit Rules.

Recognized Auditors are requested to note that, in addition to the fees payable by Recognized Auditors to the Commission
(click here for further information), the ICAEW levies an annual fee on Recognized Auditors to cover the cost of its periodic inspection work. The fee also includes an amount (as does the similar type of fee payable to the ICAEW by statutory auditors
in the UK) to cover the inspection work of the AQR team and the oversight work of the FRC. Details are available from the ICAEW.

The role of the UK’s Financial Reporting Council

As it does in the UK, the FRC acts as the independent body responsible for overseeing the work of the ICAEW in monitoring the compliance of Recognized Auditors with the Audit Rules.

The FRC has been granted statutory power to carry out this role by virtue of the Companies (Designated Body) (Jersey) Order 2012 (the "Designation Order").

Article 4(1) of the Designation Order requires the FRC to provide the Chief Minister with an annual report on its oversight activities. Article 4(2) of the Designation Order further requires the FRC to copy its report to the Commission. The most recent FRC report can be viewed by clicking here.

Memorandum of Understanding

The roles of the ICAEW and the FRC in the oversight regime for Recognized Auditors are materially the same as that under similar oversight regimes in Guernsey and the Isle of Man. To provide a framework for the working relationship between the Commission, the ICAEW, the FRC and the relevant authorities in Guernsey and the Isle of Man, a Memorandum of Understanding between all of the parties has been entered into. A copy of the Memorandum can be obtained by clicking here.

The EU’s Statutory Audit Directive

EU Directive 2006/43/EC, commonly known as the “Statutory Audit Directive”, introduced harmonised provisions in all EU Member States relating to auditor eligibility and independent oversight (quality assurance). The Directive had to be transposed into each Member State’s national law by the end of June 2008.

Article 45 of the Directive states that auditors of ‘third country’ (i.e. non-EU) companies with securities admitted to trading on an EU regulated market (e.g. a Jersey market traded company) should be subject to the auditor registration and oversight provisions in the relevant Member State where the company’s securities are admitted to trading.

However, Article 46(1) of the Directive allows an EU Member State to grant a derogation from this registration and oversight requirement (but it is not obliged to grant such a derogation) where the third country auditor is subject to an EU equivalent system of public oversight, quality assurance, investigations and penalties.

On 13 June 2013, the European Commission published a Decision which confirmed that, following an assessment it had carried out, it had concluded that the Jersey oversight regime for Recognized Auditors meets the equivalence requirements of Article 46(1) of the Directive. The Decision can be viewed by clicking here.

This assessment of equivalence may avoid the need for a Recognized Auditor –

  • to have to apply for registration in each EU Member State in which it acts as auditor to a market traded company (or allow it to benefit from “lighter touch” registration); and
  • to be subject to the systems of oversight, quality assurance, investigation and penalties in each EU Member State in which it is registered,

although it will be up to each EU Member State to determine the extent to which it recognises the equivalence of Jersey’s regime. However, the Commission understands that the European Commission has encouraged EU Member States to fully recognise an assessment of equivalence carried out by it, in order to facilitate the establishment of reciprocal arrangements.

On 21 June 2016, the European Commission published a Decision which confirmed that, following an assessment it had carried out, it had concluded that the Jersey Financial Services Commission implements adequate safeguards prohibiting and sanctioning disclosure by its current or former employees of confidential information to any third person or authority, and that the laws of Jersey permit the Jersey Financial Services Commission to transfer to the competent authorities of EU Member States documents equivalent to those referred to in Article 47(1) of the Statutory Audit Directive (namely, audit working papers or other documents relating to the audit of market traded companies).

This 'Adequacy Decision' can be viewed by clicking here. Following the adoption of the Adequacy Decision, audit supervisors in EU Member States are permitted to enter into bilateral co-operation agreements with the Jersey Financial Services Commission on the exchange of audit working papers and other audit related documents falling within the scope of Article 47 of the Statutory Audit Directive.

Note

Necessarily, the information on this webpage summarises and paraphrases statutory requirements at times. Recognized Auditors
(and applicants to be entered on the Register of Recognized Auditors) should consult the detail of the relevant legislation to
ensure that they understand how it applies to their particular circumstances.

Further information

For further information in relation to the oversight regime for Recognized Auditors please contact:

Stephen de Gruchy
Senior Adviser, Policy
Telephone: +44 (0) 1534 822110
Email: s.degruchy@jerseyfsc.org

or

Stephen Brennan
Senior Adviser, Policy
Telephone: +44 (0) 1534 822164
Email: s.brennan@jerseyfsc.org

The slides of a presentation given by the Commission to the Jersey Society of Chartered and Certified Accountants on 11 March 2010 regarding the oversight regime for Recognized Auditors and other changes made to the Companies Law by the Companies (Amendment No. 4) (Jersey) Regulations 2009 can be accessed by clicking here.

<< Back to contents

spacer Legal Information | Privacy Policy Statement | Email Disclaimer Last Updated: 27 October 2016