Changes are envisaged in Dutch legislation applicable to public-interest entities in relation to inter alia the composition of audit committees of public-interest entities pursuant to article 39 of Directive 2014/56/EU on statutory audits of annual accounts and consolidated accounts (amending Directive 2006/43/EC) (Audit Directive). Public-interest entities include entities established in the EU whose securities are admitted to trading on an EU regulated market as well as licensed credit institutions and insurance companies having their registered office in the EU and entities designated by a member state as such .
Article 39 of the Audit Directive will be implemented by means of an amendment of the Decree of
26 July 2008 (implementing article 41 of Directive 2006/43/EC) (Decree). The Audit Directive must be transposed into national legislation of the member states on 17 June 2016 at the latest. Currently, a draft Decree has been published. The main topics of the draft Decree are discussed below.
Majority of members must be independent
The majority of the members, including the chairman, of the audit committee shall be independent from the public-interest entity. Currently, only one of the members needs to be independent. This change may force public-interest entities to change the composition of their audit committee and, possibly, also to replace supervisory directors or non-executive directors in order to meet the higher number of independent members. Articles of association and internal regulations may need to be amended to reflect the new rule. The reference to the independence criteria in best practice provision III.2.2 of the Dutch Corporate Governance Code (Code) is deleted. However, this provision can still be applied to establish independence.
Financial expertise and sector knowledge
Pursuant to the Decree, at least one of the members of the audit committee must be a financial expert as meant in best practice provision III.3.2 of the Code. This reference to the Code is replaced by the provision that at least one member shall have competence in the preparation and audit of financial statements. No change in interpretation is envisaged. In addition, the Decree shall stipulate that the composition of the audit committee shall be such that it shall have the requisite sector knowledge. This requirement is also reflected in principle III.3 of the Code and should have no implications.
The existing exemptions to have an audit committee remain in place. This implies that a subsidiary, acting as a finance company, issuing bonds which are admitted to trading on an EU regulated market will continue to be exempt if its parent company has an audit committee which complies with the new requirements under the Audit Directive, as implemented in local law. For the avoidance of doubt, entities established in the EU whose securities are admitted to trading on a multilateral trading facility, such as the Luxembourg Euro MTF or the Irish Global Exchange Market, do not qualify as public-interest entities and hence are not caught by the Audit Directive.
Tasks audit committee
The audit committee will be assigned certain new tasks. As a result, audit committee regulations may need to be amended.