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A decision made 24 March 2010 regarding: Companies (Jersey) Law 1991 - Part 16 (Accounts and Audit) - approval of 3 Orders.

Decision Reference: MD-E-2010-0050
Decision Summary Title :	Oversight Orders under Part 16 (Accounts and Audit) of the Companies (Jersey) Law 1991		Date of Decision Summary:	19 March 2010
Decision Summary Author:	Director, Finance Industry Development		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	n/a
Written Report Title :	Oversight Orders under Part 16 (Accounts and Audit) of the Companies (Jersey) Law 1991		Date of Written Report:	March 2010
Written Report Author:	Director, Finance Industry Development		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Approval of 3 Orders under Part 16 (Accounts and Audit) of the Companies (Jersey) Law 1991.
Decision(s): The Minister made the following three Orders under Part 16 (Accounts and Audit) of the Companies (Jersey) Law 1991: (i) Companies (Audit) (Jersey) Order 2010 (“the Audit Order”); (ii) Companies (GAAP) (Jersey) Order 2010 (“the GAAP Order”); and (iii) Companies (Professional Oversight Board) (Jersey) Order 2010 (“the POB Order”). (Collectively, “the 3 Orders”).
Reason(s) for Decision: The Companies (Amendment No. 4) (Jersey) Regulations 2009 (“the Regulations”) will come into force on 5 April 2010 and will establish a new auditor oversight regime in Jersey. The 3 Orders provide for various matters under the new auditor oversight regime and will come into force at the same time as the Regulations to ensure that a fully functioning auditor oversight regime is in place from the start date.
Resource Implications: There are no financial or manpower implications for the States.
Action required: The Minister to sign, date and seal the 3 Orders and these to be returned to the States Greffe without delay.
Signature:		Position: Minister for Economic Development
Date Signed:		Date of Decision (If different from Date Signed):

Companies (Jersey) Law 1991 - Part 16 (Accounts and Audit) - approval of 3 Orders

THE MINISTER FOR ECONOMIC DEVELOPMENT (“the Minister”)

Oversight Orders under Part 16 (Accounts and Audit) of the Companies

(Jersey) Law 1991

1. ISSUE AND RECOMMENDATION

1.1. The Companies (Amendment No. 4) (Jersey) Regulations 2009 will come into force on 5 April 2010 and will establish a new auditor oversight regime in Jersey.

1.2. The following Orders provide for various matters under the new auditor oversight regime and need to come into force at the same time as the Regulations to ensure that a fully functioning auditor oversight regime is in place from the start date:

(i) Companies (Audit) (Jersey) Order 2010 (“the Audit Order”);

(ii) Companies (GAAP) (Jersey) Order 2010 (“the GAAP Order”); and

(iii) Companies (Professional Oversight Board) (Jersey) Order 2010 (“the POB Order”).

1.3. There are no financial or manpower implications for the States.

1.4. It is recommended that the Minister signs, dates and seals the Orders and that these are returned to the States Greffe without delay.

2. BACKGROUND

Companies (Amendment No. 4) (Jersey) Regulations 200- (“the Regulations”)

2.1. The EU Statutory Audit Directive (Directive 2006/43/EC) (“the Directive”) aims to harmonise the registration and oversight of auditors in all EU Member States. The Directive will require the auditors of all non-EU companies with shares traded on an EU stock exchange to be subject to the auditor registration and oversight provisions in every Member State where the company’s shares are traded.

2.2. However, an EU Member State will be able to waive this requirement of the Directive where the auditor is subject to an ‘EU equivalent’ system of public oversight, quality assurance, investigations and penalties. Each Member State will have the power to determine the extent to which it recognises the equivalence of non-EU regimes. However, it is likely that equivalence will be recognised following the European Commission’s recognition of Jersey’s regime.

2.3. If the Regulations were not made, a Jersey audit firm auditing a Jersey company with shares traded on stock exchanges in London, Frankfurt, Dublin and Luxembourg, would be required to register with, and follow rules set by, the competent authorities in four different Member States.

2.4. The Regulations were approved by the States on 3 December 2009 and will come into force on 5 April 2010. They will insert a new Part 16 (Accounts and Audit) into the Companies (Jersey) Law 1991 that will enable Jersey to establish an auditor oversight regime that will meet the equivalence requirements of the Directive.

2.5. In developing the Regulations, the Jersey Financial Services Commission (“the JFSC”) worked with bodies in Guernsey and the Isle of Man with a view to implementing a common form of auditor oversight regime in the Crown Dependencies as of 5 April 2010.

2.6. In order to ensure that a fully functioning auditor oversight regime is in place from the start date, three Orders need to be made under the relevant Part of the Companies (Jersey) Law 1991 to come into force on 5 April 2010.

The Companies (Audit) (Jersey) Order 2010 (“the Audit Order”)

3.1. The Regulations provide that auditors of a Jersey company whose shares are traded on an EU stock exchange (a “market traded company”) must be entered on a Register. Once entered on the Register, an auditor will be a “Recognized Auditor”.

3.2. The Audit Order will, once in force, prescribe matters relating to:

• the content of, and access to, the Register of Recognized Auditors (“the Register”) that the JFSC will maintain;

• the content of rules that Recognized Auditors will have to abide by when auditing market traded companies; and

• the circumstances when an auditor is disqualified from acting as an auditor by reason of a lack of independence.

3.3. The Audit Order sets out what information will have to be entered on the Register in respect of a Recognized Auditor. The information that will have to be entered on the Register for a firm is:

• the name and (business) address of the Recognized Auditor;

• the address of each office (whether in Jersey or elsewhere) from which the Recognized Auditor carries out the audit of market traded companies;

• the name and (business) address of each responsible individual and the name of the recognized professional body (e.g. the Institute of Chartered Accountants in England and Wales (“the ICAEW”)) of which they are a member;

• the name and (business) address of each Jersey-resident person who is a director, member or partner of the Recognized Auditor (where the audit firm takes the form of a company, a limited liability partnership, or a general partnership, respectively).

3.4. As part of the auditor oversight regime, the JFSC will approve rules issued by the ICAEW that will govern the conduct of the audit of market traded companies by Recognized Auditors. In preparation for the introduction of the Recognized Auditor oversight regime, the ICAEW, in conjunction with the JFSC, developed a detailed set of audit rules. The content of these rules has been agreed with the Jersey Society of Chartered and Certified Accountants (“the JSCCA”).

3.5. The Audit Order also sets out the circumstances in which any auditor (not just a Recognized Auditor) must not act as the auditor of a company due to a lack of independence.

Companies (GAAP) (Jersey) Order 2010 (“the GAAP Order”)

4.1. The GAAP Order will, once in force, prescribe which generally accepted accounting principles (“GAAP”) a market traded company must use when preparing its accounts.

4.2. The objective of the GAAP Order is to enhance the Island’s level of compliance with Principle 16 of the International Organization of Securities Commissions (“IOSCO”), which requires the accounts of issuers that make “public offerings” of securities and issuers whose securities are “public traded” to be prepared to high and internationally acceptable accounting standards.

4.3. In deciding which GAAPs (of particular countries) should be included in the GAAP Order, the JFSC applied the following criteria:

• Firstly - the GAAP must be that of a G7 country or of a non-G7 country that the EU considers is equivalent to International Financial Reporting Standards (“IFRS”) as adopted by the EU; and

• Secondly - there should be a reasonable likelihood that a market traded company would use the particular GAAP.

4.4. The JFSC considered, with the support of the JSCCA, that the following GAAPs met the above criteria:

• Canadian GAAP

• Chinese GAAP

• Indian GAAP

• IFRS

• IFRS as adopted by the European Union

• Japanese GAAP

• South Korean GAAP

• United Kingdom GAAP

• United States GAAP

The Companies (Professional Oversight Board) (Jersey) Order 2010 (“the POB Order”)

5.1. Under the equivalence provisions of the EU Statutory Audit Directive, the work of the ICAEW in monitoring the compliance of Recognized Auditors with the audit rules must be overseen by a body that is independent of the audit profession. In the United Kingdom, this oversight role is performed by the Professional Oversight Board (“the POB”), which is part of the Financial Reporting Council.

5.2. The POB has agreed to perform a similar role in the Jersey Recognized Auditor oversight regime. The POB Order will therefore appoint the POB to oversee the work of the ICAEW in monitoring the compliance of Jersey registered Recognized Auditors with the audit rules. Thus, the POB will carry out its function under powers granted to it under Jersey legislation.

5.3. The POB Order will require the POB to provide the Minister and the JFSC with an annual report on its discharge of the powers or duties exercised or carried out by it by virtue of the POB Order.

5.4. The POB will be required to notify the JFSC if the ICAEW fails to meet certain requirements under the Companies (Jersey) Law 1991 that are designed to ensure that the ICAEW sets and enforces appropriate standards on Recognized Auditors.

5.5. The Board of Directors of the POB has confirmed that it is content for the POB to act under the POB Order – see Supporting Document 1 (“SD1”). The JFSC has confirmed that it is confident that the POB is a suitable body to exercise the powers and duties, and meet the other obligations, that would be placed upon it by the POB Order.

6. RECOMMENDATION

6.1. It is recommended that the Minister signs, dates and seals the Orders and that these are returned to the States Greffe without delay.

DIRECTOR, FINANCE INDUSTRY DEVELOPMENT