Case C‑950/19
A
(Request for a preliminary ruling from the Helsingin hallinto-oikeus)
Judgment of the Court (Fifth Chamber), 24 March 2021
(Reference for a preliminary ruling – Company law – Directive 2006/43/EC – Statutory audits of annual accounts and consolidated accounts – Article 22a(1)(a) – Recruitment of a statutory auditor by an audited entity – Waiting period – Prohibition on taking up a key management position within the audited entity – Infringement – Gravity and duration of the infringement – Expression ‘taking up a position’ – Scope – Conclusion of an employment contract with the audited entity – Independence of statutory auditors – External appearance)
1. Freedom of movement for persons – Freedom of establishment – Company law – Statutory audits of annual accounts and consolidated accounts – Independence of statutory auditors from audited entities – Prohibition on holding certain positions in the audited entity for a specified period after termination of the audit assignment – Infringement – Calculation of the duration of the infringement – Determination of when the infringement was committed
(European Parliament and Council Directive 2006/43, Art. 22(1))
(see paragraphs 33, 39, 40)
2. Freedom of movement for persons – Freedom of establishment – Company law –– Statutory audits of annual accounts and consolidated accounts – Recruitment of former statutory auditors by audited entitites – Taking up a key management position – Definition – Auditor having concluded an employment contract with the audited entity without having started to perform his duties – Included
(European Parliament and Council Directive 2006/43, Art. 22(1))
(see paragraphs 42‑48, 53, 54, operative part)
Résumé
A, a statutory auditor approved by the Finnish Chamber of Commerce, carried out statutory audits of a company’s accounts (‘the audited company’), in his capacity as key audit partner, until 12 July 2018 on behalf of an audit firm. After completing, on 5 February 2018, the statutory audit of that company’s accounts for the financial year 2017, on 12 July 2018 A concluded a contract of employment with the audited company. According to a stock exchange announcement published by the audited company, that company appointed A as Finance Director and member of the board of directors and that A would commence his employment in February 2019. On 31 August 2018, A ceased to hold office in the audit firm which employed him.
Under the Finnish provision transposing Article 22a(1) of Directive 2006/43, (1) which lays down a number of prohibitions in order to guarantee the independence of statutory auditors, an auditor or key audit partner who carries out the statutory audit of accounts on behalf of an audit firm is not permitted to take up a key management position in the audited entity before the expiry of a period of at least one year from the time of the statutory audit of accounts, or two years where the audited entity is a public-interest body.
The competent national authority (2) responsible for the statutory audit of accounts imposed a fine of EUR 50 000 on A for failure to comply with the two-year waiting period laid down by national law in relation to public-interest bodies. It submits that that period should be calculated from 12 July 2018, the date on which A ceased to hold office as a key audit partner in the context of the audit of the accounts of the audited company. For the sole reason that he had concluded a contract of employment, A ought to be regarded as having taken up a key management position in that company on the same day.
On 14 December 2018 another audit firm took over the statutory auditing of the accounts of the audited company. On 5 February 2019, after that other audit firm had completed the statutory audit of the latter’s accounts for the financial year 2018, A began to perform his duties within that company as financial director and member of the board of directors.
A does not deny that he failed to comply with the two-year waiting period, but seeks to obtain a reduction of the fine imposed on him by the competent national authority on account of that infringement. He brought an action before the Helsingin hallinto-oikeus (Administrative Court, Helsinki, Finland) claiming that the authority’s decision was based on a misinterpretation of the gravity and duration of the offence. He argues that the expression ‘taking up a position’, referred to in Article 22a(1)(a) of Directive 2006/43, refers to the actual commencement of employment. A key factor in the assessment to be carried out should be the ability of the person concerned to influence the annual accounts of his or her new employer. Therefore, A considers that he took up the position in question only from the date on which he commenced his duties in the audited company as financial director, in February 2019.
In those circumstances, the national court stayed the proceedings in order to ask the Court to interpret Article 22a(1)(a) of Directive 2006/43. It asks, essentially, whether a statutory auditor, such as a key audit partner, appointed by an audit firm in the context of a statutory audit of accounts must be regarded as ‘taking up a key management position’ in an audited entity, within the meaning of that provision, where he or she concludes a contract of employment with the audited entity, or only from the time he or she actually starts to perform his or her duties.
Findings of the Court
Noting that there is no dispute as to the infringement of the waiting period during which it is not permitted to take up a key management position in the audited entity, the Court observes that, by its questions, the referring court wishes to determine the degree of gravity and duration of that infringement, by seeking clarifications as to the scope of the expression ‘taking up a position’, used in Article 22a(1)(a) of Directive 2006/43, in order to determine the time when that infringement must be regarded as having been committed.
Pointing out the existence of a disparity between the various language versions of Article 22a(1)(a) of Directive 2006/43, the Court examines the context of that provision, the objectives pursued by it and the legislation of which it forms part.
The Court thus observes that that provision is intended to strengthen the independence of statutory auditors in the performance of their duties. It points out, in that regard, that the requirement of independence has not only an internal aspect, in that it seeks to guarantee the reliability of the audit carried out by the auditor to the audited entity, but also an external aspect, in that it seeks to maintain third parties’ confidence in the reliability of that audit, in particular with a view to ensuring the proper functioning of the markets for investors. The statutory audits of the accounts must therefore not only be reliable, but it must also be perceived as such by third parties.
It is from that perspective, in part external, that the EU legislature prohibited a statutory auditor from holding positions at the management level in an audited entity, not only during the period covered by the audit report, but also during an appropriate period after ceasing to hold office. The Court finds that the very existence of a contractual relationship between such an auditor and an audited entity may give rise to a conflict of interests or may give the appearance of such. Due to the proximity which it appears to create between the parties, that relationship may be perceived by third parties as being capable of influencing or having influenced the audit which was carried out and, therefore, undermine their confidence in the reliability of the result of that audit.
Even where an auditor has ceased to perform his or her duties in the context of a statutory audit of the accounts of a specific entity, the negotiation or conclusion of a contractual relationship between the auditor and that entity may be sufficient to give rise retrospectively to doubts in the mind of third parties as to the quality and integrity of the audit carried out before the cessation of such duties. Consequently, a statutory auditor must be regarded as taking up a management position in an audited entity as soon as he or she concludes a contract of employment with that entity, even if he or she has not yet begun actually to perform his or her duties.