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FinancialStandards
Report
Italy
March 2010
www.eStandardsForum.org
www.estandardsforum.org
Table of contents
I. Principles of Corporate Governance
II. Code of Good Practices on Transparency in Monetary Policy
III. International Standards on Auditing
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Principles of Corporate Governance
LEVEL OF COMPLIANCE: ENACTED
SummaryThe corporate structure of traditional Italian companies issomewhat unusual in comparison to the Anglo-Americanmodel or German model. According to a 2005 InternationalMonetary Fund's (IMF) report, shareholders of traditionalItalian companies elect a Board of Directors, as well as aseparate Board of Statutory Auditors. Legislation was enactedin 2004 to give Italian companies greater flexibility in theirorganizational structure by allowing them to select betweenunitary board, a two-tier board, or the traditional Italian model.Nevertheless, the IMF report noted that virtually all listedcompanies at the time continued to follow the traditional Italianmodel. A 2009 Chartered Financial Analyst (CFA) Institutereport however, cites that more changes to existing corporategovernance models are expected due to an “evolving marketstructure”, which suggests the potential for greater engagementof shareholders and a broader distribution of shareholderrights. The corporate governance regime in Italy has undergoneconsiderable legislative reform, including the enactment of the1998 Draghi Law, which was last amended in 2008. A newCorporate Governance Code was also promulgated by theItalian Stock Exchange (Borsa Italiana) in March 2006, replacingthe 1999 Preda Code. According to the 2009 CFA report,compliance with the Corporate Governance Code is on a“comply or explain” basis and companies that have adoptedthe Code are required to publish annual statements regardingthe extent of their compliance. As stated in the same report,a number of companies have disclosed their corporategovernance mechanisms and have even modified their systemsin order to comply with the Code. On April 9, 2009, inresponse to financial market volatility, Italy adopted Law No. 33of 2009 in order to protect listed companies against speculativehostile takeovers.
General OverviewA 2005 study by Heidrick & Struggles highlighted that the Italiancorporate governance regime was generally characterized bylimited legal protection for investors, poor enforcement of
legislation, underdeveloped equity markets, pyramidal groups,and very high ownership concentration with 90 percent ofItalian companies being family-owned. While in some areas theItalian corporate governance framework incorporates morestringent investor protection requirements in comparison tointernational standards, as stated in the International MonetaryFund's (IMF) 2006 Financial System Stability Assessment(FSSA), its benefits were not always fully realized. Accordingto the 2005 Organization for Economic Co-operation andDevelopment’s (OECD) Economic Survey of Italy, there wasalso a need to strengthen the protection of minorityshareholders as stressed by the OECD’s Principles ofCorporate Governance.
The corporate structure of traditional Italian companies issomewhat unusual in comparison to the Anglo-Americanmodel or German model. According to the IMF’s 2005 reporton Selected Issues, shareholders of traditional Italian companieselect a Board of Directors, as well as a separate Board ofStatutory Auditors. The Board of Directors is responsible forassessing the suitability of business plans and organization,whereas the Board of Statutory Auditors is responsible forassessing governance and internal control issues. A 2009European Corporate Governance Institute’s (ECGI) report byLuca Enriques states that revisions to Italy’s general corporatelaw in 2001-2005 allowed companies to select betweenadopting an Anglo-American-style unitary board, German-styletwo-tier board, or the status quo of the traditional Italianmodel. The report observed that most companies haveretained the traditional Italian model in part due to the “unclearand complex features in the law devising the alternative ones”(p. 29). As of December 31, 2008, 7 two tier companies and 4one-tier companies were listed on the Italian Stock Exchange.However, a 2009 report by the Center for Financial MarketIntegrity of the Chartered Financial Analyst (CFA) Instituteasserts that changes to existing corporate governance modelsare expected due to an “evolving market structure” (p. 48),which suggests the potential for greater engagement ofshareholders and a broader distribution of shareholders’ rights.
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According to the same report, the most change so far hasbeen induced by majority shareholders “forcing outunderperforming old-style managements,” albeit with still littleinvolvement from minority shareholders. The report does goon to note, however, that new laws have provided minorityshareholders with mechanisms to appoint board directors.
In 1999, the Committee for the Corporate Governance ofListed Companies, also known as the Preda Committee, issueda Code of Conduct (Preda Code) to enhance Italiancompanies' competitiveness. According to a KPMG's 2001/2002 Survey on Corporate Governance in Europe, the PredaCode addressed the proper control of company risks, thecreation of a suitable proxy system, transparency, and themaximization of shareholder value. Compliance with the PredaCode was voluntary for Italian listed companies. In 2006, thePreda Code was replaced by a new Corporate GovernanceCode (CG Code). According to the 2009 CFA Institute report,compliance with the CG Code is on a “comply or explain”basis and companies that have adopted the Code are requiredto publish annual statements regarding the extent of theircompliance. As stated in the same report, a number ofcompanies have disclosed their corporate governancemechanisms and have even modified their systems in order tocomply with the CG Code. Amendments to the CG Codemade in 2008 also required companies to, as much as possible,ensure that shareholders have access to information related tounderstanding and exercising their rights. Further amendmentsto the Code were adopted on March 3, 2010. According toa press release on the Italian Stock Exchange (Borsa Italiana)website, new principles regarding remuneration and disclosureindependence requirements were included in the revision.
In 2002, a study prepared by the international law firm Weil,Gotshal & Manges for the European Commission, noted thatthe corporate governance regime in Italy had undergoneconsiderable legislative reform. Legislative Decree No. 58 of1998 (Consolidated Law on Financial Intermediation or the“Draghi Law”) set out the institutional framework for theregulation and supervision of the Italian securities market. TheDraghi Law, per the IMF’s 2006 Detailed Assessment of Italy'scompliance with the International Organization of SecuritiesCommissions’ (IOSCO) Objectives and Principles of SecuritiesRegulation, establishes in detail the powers of the CONSOB
and BoI, as well as the activities they may perform, andidentifies the persons and entities subject to their respectivesupervision. Per the 2009 ECGI report, the Draghi Law“streamlined the legal framework on securities offerings,takeover bids, disclosure obligations and audit firms” as well asgranted additional rights to minority shareholders and lifted theban on proxy voting. In addition to this, the Italian governmentadopted Legislative Decree No. 6 (Corporate Law Reform)in January 2003, which governs limited liability and joint-stockcompanies and cooperatives. In the wake of corporateinsolvencies, including the Parmalat scandal of 2003-04, theLaw on Savings No. 262 of 2005 (Savings Law) was enactedin January 2006 to improve corporate governance of listedcompanies, increase transparency, and enhance consumerprotection.
According to the 2009 CFA Institute report, amendmentsto the Draghi Law made in 2008 contributed to increasedshareholder protection in Italy. The amendments resulted ina requirement for the bylaws of all Italian issuers to “nowinclude specific processes that ensure equitable appointmentsto the board of directors” (p. 49), the report notes. Companybylaws are now required to contain directions stating thatat least one member is elected from the minority slate, andthat minority candidates must not be in any way linked withshareholders representing the majority slate. In April 2009,Law No. 33 of that year (Law on Economic Incentives) wasadopted by the Italian Parliament, amending several provisionsin the Italian Securities Act and Civil Code. The law wasenacted in order to discourage speculative hostile takeoversfueled by the depressed value of many listed companies inthe current financial market turbulence. According to a 2009Shearman & Sterling report, the law aims to allow “for moreeffective defensive measures against hostile takeovers” (p. 1)by amending provisions concerning mandatory tender offers,disclosure on shareholdings and treasury stock. The reporthowever does also state that it was “too early” to predict theimpact of the provisions of the new law.
Italy has also increased the sanctioning powers of the NationalCommission for Listed Companies and Stock Exchange(CONSOB), enhanced minority shareholders' rights,introduced more stringent rules on external auditors, andreinforced compliance with the Corporate Governance Codes.
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A more central role was also given to the CONSOB byincreasing its resources and powers to act independently fromthe Ministry of Economy and Finance (MEF). According to theIMF's 2006 report, the CONSOB and the Bank of Italy (BoI)share responsibility for securities regulation under a functionalapproach to supervision, and are required to cooperate in acoordinated manner in the areas in which they share authority.The Borsa Italiana, Italian Stock Exchange, is also entrustedwith regulatory and market management powers over listedcompanies. The Borsa Italiana merged with the London StockExchange in 2007. According to the 2009 CFA report, theBorsa Italiana “monitors both the implementation of the CGCode” along with the “ongoing development of the regulatoryframework” (p. 48).
As noted in the International Bank for Reconstruction andDevelopment/The World Bank's (IBRD/WB) 2010 DoingBusiness report, investor protection in Italy is slightly belowthe average achieved by member states of the OECD. TheInvestor Protection Index is a subcomponent of the IBRD/WB's 2010 Doing Business Indicators, and consists of threedimensions of investor protection: transparency of transactions(Extent of Disclosure Index), liability for self-dealing (Extentof Director Liability Index) and shareholders' ability to sueofficers and directors for misconduct (Ease of ShareholderSuits Index). The indexes range from 0 and 10, with highervalues indicating greater disclosure, greater liability of directors,greater powers of shareholders to challenge the transaction,and better investor protection. Italy scores 7 in the disclosureindex against an OECD average of 5.9. It scores 4 in theDirector Liability Index against an OECD average of 5.0 and 6in the Shareholder Suits Index against an OECD average of 6.6.
Principle: Principle I: Ensuring theBasis for an Effective CorporateGovernance Framework[Insufficient Information]
As mentioned earlier, the Preda Code was issued in 1999by the Committee for the Corporate Governance of ListedCompanies to enhance Italian companies' competitiveness.According to the KPMG's 2001/2002 Survey on CorporateGovernance in Europe, the Preda Code addressed the propercontrol of company risks, the creation of a suitable proxy
system, transparency, and the maximization of shareholdervalue. Compliance with the Preda Code was voluntary forItalian listed companies. In 2006, the Preda Code was replacedby a new Corporate Governance Code. According to the 2009CFA report, compliance with the CG Code is on a “complyor explain” basis and companies that have adopted the Codeare required to publish annual statements regarding the extentof their compliance. According to the same report, a numberof companies have disclosed their corporate governancemechanisms and have even modified their systems in order tocomply with the CG Code.
According to Weil, Gotshal & Manges (2002), the corporategovernance regime in Italy has undergone considerablelegislative reform. In January 2003, the Italian governmentadopted the Corporate Law Reform, which governs limitedliability and joint-stock companies and cooperatives. In thewake of the Parmalat scandal during 2003-04, the SavingsLaw entered into force in January 2006 to improve corporategovernance of listed companies, increase transparency, andenhance consumer protection. The Draghi Law sets out theinstitutional framework for the regulation and supervision ofthe Italian securities market. According to the IMF's 2006Detailed Assessment of Implementation of the IOSCOPrinciples, the CONSOB and the BoI share responsibility forsecurities regulation under a functional approach tosupervision, and are required to cooperate in a coordinatedmanner in the areas in which they share authority. The DraghiLaw establishes in detail the powers of both regulators andthe activities they may perform, and identifies the personsand entities subject to their respective supervision. The BorsaItaliana is also entrusted with regulatory and marketmanagement powers over listed companies, and merged withthe London Stock Exchange in 2007. According to the 2009report by the CFA Institute, the Borsa Italiana “monitors boththe implementation of the CG Code” along with the “ongoingdevelopment of the regulatory framework” (p. 48).
The 2009 CFA Institute report notes that amendments tothe Draghi Law made in 2008 contributed to increasedshareholders’ protection in Italy. Per the same report, theseamendment resulted in a requirement for the bylaws of allItalian issuers to “now include specific processes that ensureequitable appointments to the board of directors” (p. 49). In
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addition to this, the Draghi Law also requires companies todisclose information on their compliance with their adoptedcode of conduct. However, despite fairly recent developments,available sources do not directly address Italy's compliance withthis principle.
Principle: Principle II: The Rights ofShareholders and Key OwnershipFunction[Insufficient Information]
The Italian Civil Code contains the main provisions with regardto the treatment and rights of shareholders. According tothe IMF's 2006 Detailed Assessment, the Civil Code andCONSOB regulations require members of the Board ofDirectors, Board of Statutory Auditors, as well as generalmanagers of the company "to carry out their duties with duediligence and to be liable for losses arising from the failure tofulfill their responsibilities" (p. 13). A provision under the DraghiLaw also permits shareholders of listed companies to bringcollective action against the members of the Board of Directorsfor breach of their legal duties. The 2009 CFA Institute reportdetails the 2008 amendments made to this same law, whichit referred to as having contributed to increased shareholderprotection in Italy. Per the same report, these amendmentsresulted in a requirement for the bylaws of all Italian issuersto “now include specific processes that ensure equitableappointments to the board of directors” (p. 49). Alongside this,the report also states that shareholders representing at least 10percent of holdings are able to request shareholder meetingsand have the power to add items onto the meeting agenda.A 2008 amendment to the CG Code requires companiesto, as much as possible, ensure that shareholders have accessto information related to understanding and exercising theirrights. Proxy voting is allowed in Italy, but is subject to certainrestrictions. However, despite the above information, availablesources do not directly address Italy's compliance with thisprinciple.
Principle: Principle III: The EquitableTreatment of Shareholders[Insufficient Information]
As stated in the 2005 OECD’s Economic Survey of Italy,there was a need to strengthen the protection of minorityshareholders as stressed by the OECD’s Principles ofCorporate Governance. According to the IMF's 2006 DetailedAssessment of Implementation of the IOSCO Principles, theCivil Code and the CONSOB regulations guarantee the fairand equal treatment of shareholders, and require membersof the Board of Directors, Board of Statutory Auditors, aswell as general managers of the company "to carry out theirduties with due diligence and to be liable for losses arisingfrom the failure to fulfill their responsibilities" (p. 13). Withrespect to listed companies, the Draghi Law requires listedissuers to guarantee the same treatment to all holders ofidentical financial instruments. A provision under the Law alsopermits shareholders of listed companies to bring collectiveaction against the members of the Board of Directors forbreach of their legal duties. In practice, however, the legalprotection for minority shareholders was not fully realized,according to the IMF's 2005 report on Selected Issues, ascollective action of minority shareholders for misrepresentationagainst the members of the Board of Directors was unlikely.
As mentioned earlier by the 2009 CFA Institute report,amendments to the Draghi Law made in 2008, contributed toincreased shareholder protection in Italy. Per this report, theamendments resulted in a requirement for the bylaws of allItalian issuers to “now include specific processes that ensureequitable appointments to the board of directors” (p. 49).Company bylaws are now required to contain directions statingthat at least one member is elected from the minority slate,and that minority candidates must not be in any way linkedwith shareholders representing the majority slate. However,the 2009 Enriques paper reports a “little known” consequenceof the Draghi Law, involving fines for violations of securitieslaws being significantly lowered. According to the report, theresulting sanctions for insider trading and market manipulationswere low enough to disincentivize prosecutions due to the“interplay between statute of limitations rules and thepathological length of criminal trials” (p. 27).
According to the 2009 Shearman & Sterling report, the newItalian Law on Economic Incentives outlines provisionsconcerning mandatory tender offers. The law states that anyperson holding over 30 percent of shares in a listed company
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may increase their holdings by up to 5 percent withoutlaunching a mandatory tender offer on the remaining shares inissuance. This is an increase over the previous threshold of 3percent, previously set out by CONSOB Regulation. The lawalso increased the maximum amount of treasury stock from 10percent of overall share capital to 20 percent, thus amendingArticle 2357 of the Italian Civil Code. Due to treasury stocknot corresponding to voting rights, any repurchase of shareswould indirectly increase the voting power of existing leadingshareholders. Nonetheless, available sources do not directlyaddress Italy's compliance with this principle.
Principle: Principle IV: The Role ofStakeholders in CorporateGovernance[Insufficient Information]
The 2005 OECD’s Economic Survey of Italy underlined theneed to update the Bankruptcy Act (Royal Decree No. 267 of1942), which failed to ensure the protection of creditors, orto allow companies' owners to start a new business. Followingseveral prominent Italian insolvencies, including Parmalat, theParliament issued Legislative Decree No. 35 in March 2005to introduce important amendments to the Italian insolvencyframework, which had remained largely unchanged since 1942.On May 14, 2005, the Legislative Decree was subsequentlyconverted into legislation by Law No. 80 of 2005. However,available sources do not directly address Italy's compliance withthis principle.
Principle: Principle V: Disclosure andTransparency[Insufficient Information]
At the time of the IMF's 2005 report, disclosure and financialreporting requirements applicable to listed companies in Italywere quite rigorous, particularly in comparison with otherEuropean countries. However pecuniary and administrativesanctions that could be imposed on issuers or management forbreaches of these requirements remained limited in practice.Moreover, the CONSOB could not impose penalties directly,but had to act through the MEF. Pursuant to the Savings Law,the CONSOB was given more resources and powers to act
independently from the MEF. In its 2006 Detailed Assessmentof Implementation of the IOSCO Principles, the IMF notedthat the current legal and regulatory framework will be revisedto transpose and implement the EU Prospectus Directive No.2003/71/EC. The CONSOB has reported that its disclosurerequirements are already substantially in line with theforthcoming EU Directive.
Italian listed companies are required to prepare quarterly,semi-annual and annual reports, and publish financialstatements on an annual basis. Furthermore, both EUDirectives and Italian legislation require individual andconsolidated financial statements of listed companies to beaudited by an external auditor. Per a regulatory and standard-setting framework assessment published by the National Boardof Chartered Accountants and Accounting Experts in 2005,the CONSOB has the power to recommend accounting andauditing standards for listed entities. Conversely, the Italianaccounting standards are enacted by the Organismo Italiano diContabilità. As of 2005, provisions for regulating the accountingand auditing profession in Italy were among the strongestin Europe, as stated in the IMF's 2005 report. Furthermore,the CONSOB's audit quality assurance system was quitecomprehensive. In this regard, the IMF report recommendedproviding substantial staff resources to conduct these intensiveand on-going reviews. Beginning in 2005, pursuant toLegislative Decree No. 38 of 2005, Italian listed companiesare required to prepare their consolidated financial statementsusing International Financial Reporting Standards (IFRSs) issuedby the International Accounting Standards Board. As forindividual company accounts, CONSOB regulations mandatethe use of IFRSs and national accounting standards.
As mentioned earlier, according to the 2009 ECGI report, theDraghi Law “significantly improved mandatory disclosure forlisted companies” (p. 18). The 2009 CFA Institute report statesthat the Draghi Law requires that companies annually disclose“comply-or-explain” statements based on their adopted codeof conduct. The report also states that not only have a numberof companies disclosed their corporate governancemechanisms, some have even modified their systems in orderto comply with the CG Code. In April 2009, the Law onEconomic Incentives introduced provisions to the ItalianSecurities Act requiring disclosure of shareholdings below 2
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percent. The law also outlines sanctions concerning the failureto undertake such disclosure measures. However, availablesources do not directly address Italy's compliance with thisprinciple.
Principle: Principle VI: TheResponsibilities of the Board[Insufficient Information]
As part of Italy's unusual corporate structure, shareholdersof traditional Italian companies elect a Board of Directors, aswell as a separate Board of Statutory Auditors. The formerhas the authority to assess the suitability of business plansand organization, whereas the latter is responsible for assessinggovernance and internal control issues, and monitoring theexternal auditing firm. According to the IMF's 2005 report,while an independent Board of Directors is key to protectingshareholders' rights, there are no legally mandatedrequirements for Board independence in Italy. Furthermore,neither Italian law nor the Preda Code addressed the issueof representation of minority shareholders on the Board ofDirectors. In performing their functions, per the 2006 FSSA,members of the Board of Statutory Auditors have wide-ranging powers to obtain information from the Directors.Furthermore, legislation requires the Board of StatutoryAuditors to be independent, and to include at least onemember appointed by the company's minority shareholders.However, the effectiveness of this provision is limited inpractice, as the ability of any one of the board members to actunilaterally is constrained
According to Heidrick & Struggles (2005), the average numberof committee meetings in 2005 in Italy was the lowest inEurope. Furthermore, remuneration committees did notinclude any independent directors. Conversely, the proportionof independent non-executive directors increased in 2005. The2009 CFA Institute report states that the release of the CGCode urged boards of directors to facilitate the participationof as many shareholders as possible in shareholder meetings.Boards have also been entrusted with enabling shareholdersto increase their rights, as well as with maintaining consistentcommunication with shareholders. Amendments to the CGCode in 2008 also required companies to, as much as possibleensure that shareholders have access to information related
to understanding and exercising their rights. Companies arethus required to create an identifiable and accessible section oftheir website containing such information. This webpage shouldcontain details on procedures for shareholder participation,voting rights, as well as documentation related to items on ameeting agenda. These sources of information however, do notdirectly address Italy's compliance with this principle.
Sources of AssessmentCFA Institute Centre for Financial Market Integrity, “Shareowners Rightsacross the Markets: A Manual for Investors,” 2009. Available fromChartered Financial Analyst Institute website. Accessed on February 12,2010. (CFA Institute 2009)http://www.cfainstitute.org/centre/topics/pdf/italy_sor.pdf
Enriques, L., “Modernizing Italy’s Corporate Governance Institutions:Mission Accomplished?” European Corporate Governance InstituteWorking Paper Series in Law, No. 123, 2009. Available from Social ScienceResearch Network website. Accessed on February 12, 2010. (Enriques2009)http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1415604_c...
Heidrick & Struggles, "Corporate Governance in Europe: What's theOutlook?" 2005. Available from Heidrick & Struggles website. Accessed onFebruary 12, 2010. (Heidrick & Struggles 2005)http://www.heidrick.com/NR/rdonlyres/B1A816CD-0E51-4605-B...
International Monetary Fund, "Italy: Selected Issues," Country Report No.05/41, Washington, D.C.: IMF, February 2005. Available from InternationalMonetary Fund website. Accessed on February 12, 2010. (IMF 2005)http://www.imf.org/external/pubs/ft/scr/2005/cr0541.pdf
International Monetary Fund, "Italy: Financial System Stability Assessment,including reports on the Observance of Standards and Codes on thefollowing topics: Banking Supervision, Payment Systems, Insurance,Securities Regulation, Securities Settlement and Payment Systems,Monetary and Financial Policy Transparency, and Anti-Money Launderingand Combating the Financing of Terrorism," Country Report No. 06/112,Washington, D.C.: IMF, March 2006. Available from International MonetaryFund website. Accessed on February 12, 2010. (IMF 2006a)http://www.imf.org/external/pubs/ft/scr/2006/cr06112.pdf
Organization for Economic Co-operation and Development, "2005Economic Survey of Italy, Chapter 3: Corporate Governance and MarketLiberalization: the Scope for Improvement," Paris: OECD, May 2005.Available from Organization for Economic Co-operation and Developmentwebsite. Accessed on February 12, 2010. (OECD 2005)http://www.oecd.org/document/61/0,2340,en_2649_33733_3475...http://www.oecd.org/document/19/0,3343,en_2649_33733_3474...
Relevant OrganizationsBank of Italy - Banca d'Italia (BoI)http://www.bancaditalia.it/bancaditalia
National Commission for Listed Companies and Stock Exchange -Commissione Nazionale per le Società e la Borsa (CONSOB)http://www.consob.it/mainen/index.html
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International Accounting Standards Board (IASB)http://www.iasb.org/Home.htm
Organismo Italiano di Contabilità (OIC) (in Italian)http://80.207.146.178/Pages/Public/default.aspx
Italian Stock Exchange - Borsa Italiana (BI)http://www.borsaitalia.it/homepage/homepage.en.htm
Ministry of Economy and Finance - Ministero dell'Economia e delle Finanze(MEF) (in Italian)http://www.tesoro.it/
National Council of Chartered Accountants and Accounting Experts -Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili(CNDCEC) (in Italian)http://www.cndcec.it/PORTAL/home/jsp/home.jsp
Relevant Legislation/RegulationCentral Bank Supervisory Provisions concerning Banks' Organization andCorporate Governance, 2008 - Disposizioni di Vigilanza in Materia diOrganizzazione e Governo Societario delle Banche, 2008http://www.ecgi.org/codes/documents/banca_italiana_guidel...http://www.ecgi.org/codes/documents/banca_italiana_guidel...
Corporate Governance Code, 2006 - Codice di Autodisciplina, 2006http://www.ecgi.org/codes/documents/codiceautodisciplina_...http://www.ecgi.org/codes/documents/codiceautodisciplina.pdf
Committee for the Corporate Governance of Listed Companies, Code ofConduct (Preda Code), 1999 - Comitato per la Corporate Governancedelle Società Quotate, Codice di Autodisciplina, 1999http://www.ecgi.org/codes/documents/code_of_conduct.pdfhttp://www.ecgi.org/codes/documents/codice_di_autodiscipl...
Law on Savings No. 262, 2005 - Legge recante Disposizioni per la Tuteladel Risparmio e la Disciplina dei Mercati Finanziari No. 262, 2005 (inItalian)http://www.camera.it/parlam/leggi/05262l.htm
Law on Market Abuse No. 62, 2005 - Legge recante Disposizioni perl'Adempimento di Obblighi Derivanti dall'Appartenenza dell'Italia alleComunita' Europee No. 62, 2005 (in Italian)http://www.camera.it/parlam/leggi/05062l.htm
Legislative Decree Consolidated Law on Financial Intermediation No. 58,1998 (Draghi Law) - Decreto Legislativo No. 58, 1998 (amendmentsthrough 2009)http://www.consob.it/documenti/english/laws/fr_decree58_1...http://www.consob.it/documenti/Regolamentazione/normativa...
Legislative Decree Corporate Law Reform No. 6, 2003 - DecretoLegislativo recante Riforma Organica della Disciplina delle Societa' diCapitali e Società Cooperative No. 6, 2003 (in Italian only)http://www.altalex.com/index.php?idnot=5608
Legislative Decree regarding the Options Provided by Article 5 ofRegulation 1606/2002 of the European Parliament to Permit or Requirethe Adoption of the International Financial Reporting Standards No. 38,2005 - Decreto Legislativo recante Esercizio delle Opzioni Previstedall'Articolo 5 del Regolamento (CE) N. 1606/2002 in Materia di PrincipiContabili Internazionali No. 38, 2005 (in Italian)http://www.camera.it/parlam/leggi/deleghe/05038dl.htm
Legislative Decree on the Action plan for the Economic, Social andTerritorial Development No. 35, 2005 - Decreto Legislativo recanteDisposizioni Urgenti nell'Ambito del Piano di Azione per lo SviluppoEconomico, Sociale e Territoriale No. 35, 2005 (in Italian)http://www.parlamento.it/parlam/leggi/decreti/05035d.htm
Law on Economic Incentives No. 33, 2009 – Legge recante Misure Urgentia Sostegno dei Settori Industali in Crisis No. 33, 2009 (in Italian only)http://www.parlamento.it/parlam/leggi/09033l.htm
Royal Decree on the Discipline of Bankruptcy, Preventive Creditors’Settlement Procedures, Controlled Administration and CompulsoryAdministration Procedures No. 267, 1942 - Regio Decreto per Disciplinadel Fallimento, del Concordato Preventivo, dell'AmministrazioneControllata e della Liquidazione Coatta Amministrativa No. 267, 1942 (inItalian)http://www.regione.piemonte.it/edilizia/fallimenti/dwd/re...
Law with modifications of the decree-law No. 35 of 14 March 2005 on theAction plan for the Economic, Social and Territorial Development No. 80,2005 - Legge per Conversione in Legge, con Modificazioni, del DecretoLegge N. 35/2005, recante Disposizioni Urgenti nell'Ambito del Piano diAzione per lo Sviluppo Economico, Sociale e Territoriale No. 80, 2005 (inItalian only)http://www.camera.it/parlam/leggi/05080l.htm
Civil Code, 1942 - Codice Civile, 1942 (as of 2009) (in Italian)http://www.altalex.com/index.php?idnot=34794
CONSOB Regulationshttp://www.consob.it/mainen/legal_framework/laws_regulati...
EU Market Abuse Directive No. 2003/6/EC, 2003http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:...
EU Transparency Directive No. 2004/109/EC, 2004http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:...
Supplementary SourcesBorsa Italiana website. Accessed on March 23, 2010.http://www.borsaitaliana.it/borsaitaliana/ufficio-stampa/comunicati-stampa/2010/corpgovernancefebb2010.en.htm
International Bank for Reconstruction and Development/The World Bank"Doing Business 2010: Italy," 2009. Available from Doing Business website.Accessed on February 12, 2010. (IBRD&WB 2009)http://www.doingbusiness.org/ExploreEconomies/?economyid=96
International Monetary Fund, "Italy: Financial Sector Assessment Program -Detailed Assessment of Implementation of the IOSCO Objectives andPrinciples of Securities Regulation," Country Report No. 06/83,Washington, D.C.: IMF, March, 2006. Available from International MonetaryFund website. Accessed on February 12, 2010. (IMF 2006b)http://www.imf.org/external/pubs/ft/scr/2006/cr0683.pdf
KPMG, "Corporate Governance in Europe - KPMG Survey 2001/02,"London: KPMG, 2002. Available from KPMG website. Accessed onFebruary 12, 2010. (KPMG 2002)http://www.kpmg.com/aci/docs/corpgov.pdf
National Board of Chartered Accountants and Accounting Experts,"Assessment of the Regulatory and Standard- Setting Framework," Self-assessment prepared as part of the International Federation ofAccountants' Member Body Compliance Program, April 2005. Available
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from International Federation of Accountants website. Accessed onFebruary 12, 2010. (CNDCEC 2005)http://www.ifac.org/ComplianceAssessment/published_survey...
Shearman & Sterling LLP, “ European Corporate: Client Publication,” May2009. Available from Shearman & Sterling website. Accessed on February12, 2010 (S&S 2009)http://www.shearman.com/files/Publication/0917b566-a28a-4...
U.S. Department of Commerce, "Doing Business in Italy: A CountryCommercial Guide," March 2009. Available from U.S. & ForeignCommercial Service and U.S. Department of State website. Accessed on
February 12, 2010. (U.S. DoC 2009)http://www.buyusa.gov/italy/en/587.pdf
Weil, Gotshal & Manges LLP, "Annex IV: Discussion Of IndividualCorporate Governance Codes Relevant To The European Union And ItsMember States," Consultation with the EASD and ECGN, January 2002.Available from European Union website. Accessed on February 12, 2010.(Weil et al. 2002)http://ec.europa.eu/internal_market/company/docs/corpgov/...
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Code of Good Practices on Transparency in Monetary Policy
LEVEL OF COMPLIANCE: FULL COMPLIANCE
SummaryItaly adopted the euro at its launch in January 1999, andthus, its monetary policy is no longer governed by the Italiancentral bank. Rather, the Governing Council of the EuropeanCentral Bank (ECB) determines Italian monetary policy, andthe Eurosystem (consisting of the ECB and the central banks ofthe member states that have adopted the euro) is responsiblefor its implementation. According to the InternationalMonetary Fund (IMF), the Eurosystem and the ECB maintainhigh transparency standards and a commitment to openness.The ECB observes the IMF's codes and standards for monetarypolicy transparency and pursues an active policy ofcommunication with the public. In 2009, the IMF voiced itssupport for the ECB’s accommodative monetary policy inresponse to the global financial crisis and recession in theEuropean Union (EU). The Fund urged continued monetaryeasing in order to prevent a still-possible deflationary spiral, andcalled for quicker action from the EU in order to repair thefinancial system.
General OverviewSince the launch of the European Monetary Union (EMU) onJanuary 1, 1999, monetary policy is no longer determined bythe Italian central bank. Rather, it is crafted by the governingcouncil of the European Central Bank (ECB), and implementedby the Eurosystem, consisting of the ECB and the NationalCentral Banks of the member states that have adopted theeuro. According to a 2001 International Monetary Fund’s (IMF)Report on the Observance of Standards and Codes (ROSC)for monetary policy in the euro area, the Eurosystem complieswith nearly all monetary policy transparency standards andhas demonstrated a strong commitment to communicatingwith the public. The ECB offers a wide range of publicationsregarding its policies, practices, and procedures, and most areavailable on its website. The ECB also welcomes visits by thepress and the public. The IMF's 2001 ROSC for the euro areanoted that the Eurosystem implements the ECB's monetarypolicy decisions. The functioning of the Eurosystem is
complicated by "its complex architecture, the varied monetaryand legal heritages of participating National Central Banks anduncertainties about the structural characteristics of the euroarea" (p. 7). The fact that the central bank of each membernation has developed its own transparency practices has givenrise to difficulties in establishing comparability of policy and dataacross the euro area.
The 2001 ROSC noted that "the Eurosystem observed all46 principles contained in the Code (except for two, whichwere regarded as not applicable), and only eight of these wereconsidered to be only 'broadly' or 'partly' observed" (p. 12).In an ECB's 2005 Annual Report, the bank announced thatit would not publish the minutes of its Governing Councildiscussions, "in order to maintain the confidentiality of itsmeetings" (p. 143). Instead, it reaffirmed its opinion that otherchannels of communication permitted greater timeliness, suchas the press conferences that it held after such meetings. These,the ECB argued, provided "in real time, a comprehensiveaccount of the reasons underpinning the Governing Council'sdecisions, and thus essentially serve the same purpose asminutes" (p. 143), without the delay that would result from thepublication of formally adopted minutes.
The ECB's 2005 annual report also stressed that thecombination of press conferences, the Monthly Bulletin, andthe monthly communication on Governing Council decisionstaken in addition to interest rate decisions, make the ECB"one of the most transparent central banks in the world" (p.144). In the same report, the ECB president noted that thedisclosure of specific voting behavior could result in unduepressure being brought to bear on individual council members,with the result that they might lose sight of the broader euro-area perspective that should govern their deliberations. AnECB’s 2008 Annual Report notes that this issue was once againconsidered by the European Parliament in its 2008 analysis ofthe work performed by the ECB. The report also stated that“the European Parliament acknowledged the full independenceof the ECB and recognized that publishing the minutes of
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Governing Council meetings could lead to political pressure onGoverning Council members” (p. 185).
In its official statement on the 2005 Article IV Consultationwith the euro area countries, the IMF noted that theEurosystem has helped to foster macroeconomic stability andreform. According to the Consultation, "peer-driven,multilateral surveillance has encouraged the adoption of betterpolicies. And thanks in part to the ECB's hard-won credibility,wage pressures are subdued and long-run interest rates areat historical lows in all euro-area member countries,notwithstanding large shocks to prices." Meanwhile, an IMF’s2009 Article IV Consultation for the euro area was publishedin July of the same year, well into the global financial crisisand subsequent recession in the EU. The report stated thatthere were “tentative signs of improvement” (p. 3), but that theeconomic outlook remained uncertain. Per the same report,the Fund shared the ECB’s concern that deflation continuedto be a major risk in the EU, and thus called for continuedlow interest rates and urged that “all unconventional measures. . . remain under consideration” (p. 3) as long as prolongeddeflation remained a possibility. At the same time, the ECBwas considering a responsible exit strategy, and stated that,if necessary, it could issue its own paper and provide short-term deposit facilities to reduce liquidity. Of further concernto the IMF was the slow pace of bank recapitalization andother measures to shore up the financial system. The Fundcalled for the EU to be more “proactive” in its approach tostabilization, and urged speedier action on the coordination ofpolicy responses. Beyond immediate measures, the Article IVreport stated that central banks across the EU would need toplay a crucial role in the European Systemic Risk Board in orderto provide early warnings to prevent future crises.
Principle: Clarity of roles,responsibilities and objectives ofcentral banks.[Full Compliance]
Since the launch of the EMU on January 1, 1999, Italy’smonetary policy has come under the direction of theEurosystem and the ECB. The IMF's 2001 ROSC for the euroarea stated that "in terms of the clarity of roles, responsibilities,and objectives of the Eurosystem, there is a high degree of
observance of the Code" (p. 8). The goals and responsibilitiesof the ECB and national central banks in the euro area areclearly set forth in the Maastricht Treaty and the Statute of theEuropean System of Central Banks (ESCB) of 1992. The ROSCnoted, however, that there remains a lack of clarity as to foreignexchange policy and how it is allocated between the Councilof Ministers and the Eurosystem. The 2001 ROSC specificallyobserved that "operationally, the varied disclosure practicesby National Central Banks on the terms and conditions forgovernment deposits and participation in governmentsecurities markets could be improved by the National CentralBanks adopting a common approach to greater disclosure" (p.8).
The 2001 ROSC also cited the ECB position on this issue,which maintains that the Maastricht Treaty and the 1992Statute provide sufficient clarity in this regard, because their"provisions ensure that regular exchanges of information andviews take place between the Council of Ministers and theECB on the exchange rate of the euro" (p. 12). The ESCBand ECB are established by Articles 105 through 108 of theMaastricht Treaty. Article 105, paragraph 1 establishes theprimary responsibility of the ESCB as the maintenance of pricestability and the support of the European Community's (EC)general economic policies. Paragraph 2 of the same articleenumerates ESCB responsibilities as follows: it shall define andimplement the monetary policy of the euro area; conductforeign exchange operations; hold and manage the officialforeign reserves of the Member States; and promote thesmooth operation of payment systems. Paragraph 5 of thesame article requires that the ESCB contribute to the smoothconduct of prudential supervision of credit institutions and thestability of the financial system.
The Maastricht Treaty, in conjunction with the provisions of the1992 Statute, confers upon the ECB (with the National CentralBanks) the task of making and implementing monetary policydecisions. Article 109 of the Maastricht Treaty establishes therules by which the ECB's Governing Council (as well as thecouncil's Executive Board) is to be constituted, and enumeratesits responsibilities in the formulation of monetary policy ofthe euro area. Article 109a, Paragraph 1 stipulates that theGoverning Council of the ECB shall comprise the Executive
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Board and the Governors of the National Central Banks of themember states.
In 2003, an IMF Article IV Consultation with the Euro-Areacountries reported that earlier weaknesses in the ECB'smonetary framework had been addressed. Previously existingproblems in communication had been alleviated, and greaterclarity was achieved in the terms according to which pricestability would be maintained, reducing the threat of area-widedeflation.
The 2001 ROSC lauded the Eurosystem's "high degree oflegal and operational independence" (p. 6). The MaastrichtTreaty prohibits the ECB and the National Central Banks andmembers of their decision-making bodies from takinginstructions from any external body, and prohibits attempts onthe part of member states or other bodies to influence thedecisions or activities of the ECB or National Central Banks.The ESCB/ECB Statute of 1992 provides for secure tenure forNational Central Bank governors and sets the minimum termof office at five years. Executive Board members serve 8-year,non-renewable terms. The statute stipulates that governorsand members of the Executive Board may be removed fromoffice only in the event of incapacity or gross misconduct. TheMaastricht Treaty designates the European Court of Justice(ECJ) as the competent authority to adjudicate questionsarising from the removal from office of a governor or boardmember.
Principle: Open process forformulating and reporting monetarypolicy decisions.[Full Compliance]
In 2001, the IMF's ROSC for the euro area noted that boththe Eurosystem and the ECB demonstrate high compliancewith the Code. According to this report, "the ECB providesextensive information on the framework and proceduresunderlying the implementation of monetary policy" (p. 8). TheECB publishes its guidelines for Eurosystem monetary policyinstruments and procedures in the Official Journal of theEuropean Communities. It also publishes a Monthly Bulletin andregularly issues press releases, transcripts of press conferences,and other public statements in an effort to communicate both
its policy stance and the considerations underlying that policy.In addition, the ECB publishes a broad range of informationon the framework and procedures employed in monetarypolicy making and implementation. The 2001 ROSC notedthat the ECB's program of data dissemination is extensive,and that its publications are of high quality. Italian monetarypolicy is governed by the ECB, for which the Maastricht Treatysets forth precise reporting requirements. According to thetreaty, quarterly reports, weekly financial statements, and anannual report must be published. The ECB meets and exceedsthese requirements, publishing a monthly report in place ofthe quarterly publication mandated by the treaty. As notedin an ECB's 2008 Annual Report, "the European Parliament– as the body which derives its legitimacy directly from thecitizens of the EU – has continued to play a key role inholding the ECB to account" (p. 184). Article 113 of theTreaty requires the president to present the ECB's AnnualReport to the plenary session of the European Parliament.In addition, the ECB's 2008 Annual Report noted that thepresident "[reports] regularly on the ECB's monetary policyand its other tasks during his quarterly appearances before theEuropean Parliament’s Committee on Economic and MonetaryAffairs" (p. 184).
Other examples of the ECB's commitment to transparency canbe drawn from the 2008 Annual Report, which documentedthe visit by the Committee on Economic and Monetary Affairsto the ECB for a discussion of issues relevant to monetarypolicy, and discussions held between the Committee andEuropean Parliament members about EU policies regardingsecurities clearing and settlement. The 2008 Annual Reportalso detailed the ECB's practice of responding to Parliamentaryrequests for information in the ECB’s areas of expertise.
Principle: Public availability ofinformation on monetary policy.[Full Compliance]
As mention earlier, since the launch of the EMU in 1999, Italyhas been a member of the euro area and its monetary policyhas been governed by the Eurosystem through the ECB. TheIMF's 2001 ROSC for the euro area noted that the Eurosystem"maintains a high degree of observance of the Code in thearea of public availability of information on monetary policy"
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(p. 8). The ECB complies with nearly all of the IMF's SpecialData Dissemination Standard principles regarding coverage,periodicity, timeliness, and access by the public for centralbank, banking sector, and foreign reserves data. Among theECB's freely available publications are detailed annual balancesheets and a weekly consolidated financial statement for theEurosystem. The quality and accessibility of these publicationsare high, and they are available in all EU languages. The ECBalso offers an active public information service, including pressreleases and addresses made by the Bank's Executive Board.Regulations and other documentation are provided on the ECBwebsite.
The IMF's 2009 Article IV Consultation for the euro areadetermined that Eurostat and ECB statistics maintainappropriate standards of quality, scope, and timeliness, and thatmajor progress has been made since the euro was introduced.A new regulation passed in 2009 improved the legal basisfor collecting and compiling EU statistics. Nonetheless, thereport states that the financial crisis that began in late 2007“has exposed new needs, notably, new data and informationsystems to allow better macrofinancial risk monitoring andsupport the work of the new European Systemic Risk Board”(p. 42). To this end, the ECB is planning to expand statisticalcompilation of non-bank financial intermediaries that posesystemic risks, such as hedge funds, insurance companies, andpension funds.
The 2007 ECB Annual Report stated that "the ECB's otherstatutory publications – the Annual Report, the quarterly issueof the Monthly Bulletin and the Convergence Report – are alsomade available in the official EU languages" (p. 172). Throughthe Bank of Italy the ECB also makes available its keypublications and issues press releases on changes in monetarypolicy, macroeconomic projections, and other information ofpublic interest, again, in all EU languages.
Principle: Accountability andassurances of integrity by the centralbank.[Full Compliance]
In 2001, the IMF's ROSC for the euro area ascertained that"the Eurosystem practices a high degree of accountability and
assurances of integrity in the conduct of its operations, and hasa high degree of observance of the Code" (p. 9) In practice,the ECB Executive Board members, including the president ofthe board, make regular reports to the European parliamentand its Committee on Economic and Monetary Affairs. Thepublication of annual reports occurs on a regular schedule, witha lag of no more than four months from the end of the priorfiscal year. Other documentation includes a report releasedby the Anti-Fraud Committee, a management efficiency reportproduced by the Court of Auditors (both released annually),and data on the ECB's internal governance, including itsemployee code of conduct. The 2001 IMF’s ROSC did identifyareas in which the ECB might make improvements. Theseinclude a review of the way in which the ECB carries outconsultations on payment issues, and a recommendation thatit actively engage the public, for example via the internet, onproposed technical, regulatory, and policy changes.
Sources of AssessmentInternational Monetary Fund, "Euro Area - Report on Observance ofStandards and Codes: Assessment of Observance of the IMF Code ofGood Practices on Transparency on Monetary and Financial Policies,"Washington, D.C.: IMF, October 2001. Available from InternationalMonetary Fund website. Accessed on February 24, 2010. (IMF 2001)http://www.imf.org/external/pubs/ft/scr/2001/cr01195.pdf
Relevant OrganizationsBank of Italy – Banca D'Italia (BoI)http://www.bancaditalia.it/
European Central Bank (ECB)http://www.ecb.int/
Eurostathttp://epp.eurostat.ec.europa.eu/portal/page/portal/euros...
The Executive Board of the European Central Bankhttp://www.ecb.int/ecb/orga/decisions/eb/html/index.en.html
National Institute of Statistics – Istituto Nazionale di Statistica (ISTAT)http://www.istat.it/english/
Relevant Legislation/RegulationThe Maastricht Treaty - Treaty on European Union, 1992http://www.eurotreaties.com/maastrichtext.html
Statute of the European System of Central Banks and of the EuropeanCentral Bank, 1992http://www.ecb.int/ecb/legal/1341/1343/html/index.en.html
Bank of Italy Statute, 1936 - Statuto Della Banca D'Italia,1936 (as of 2006)http://www.bancaditalia.it/bancaditalia/funzgov/gov/statu...
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Supplementary SourcesEuropean Central Bank, "Annual Report 2004," Frankfurt: ECB, February2005. Available from ECB website. Accessed on February 24, 2010. (ECB2005)http://www.ecb.int/pub/pdf/annrep/ar2004en.pdf
European Central Bank, "Annual Report 2005," Frankfurt: ECB, February2006. Available from ECB website. Accessed on February 24, 2010. (ECB2006)http://www.ecb.int/pub/pdf/annrep/ar2005en.pdf
European Central Bank, "Annual Report 2006," Frankfurt: ECB, March2007. Available from ECB website. Accessed on February 24, 2010. (ECB2007)http://www.ecb.int/pub/pdf/annrep/ar2006en.pdf
European Central Bank, "Annual Report 2007," Frankfurt: ECB, April 2008.Available from ECB website. Accessed on February 24, 2010. (ECB 2008)http://www.ecb.int/pub/pdf/annrep/ar2007en.pdf
European Central Bank, "Annual Report 2008," Frankfurt: ECB, April 2009.Available from ECB website. Accessed on February 24, 2010. (ECB 2009)http://www.ecb.int/pub/pdf/annrep/ar2008en.pdf
International Monetary Fund, "Concluding Statement of the IMF Mission onEuro Area Policies 2004 (In the Context of the 2004 Article IVConsultation Discussions with the Euro Area Countries)," Washington,D.C.: IMF, May 18, 2004. Available from International Monetary Fundwebsite. Accessed on February 24, 2010. (IMF 2004)http://www.imf.org/external/np/ms/2004/051804.htm
International Monetary Fund, "Concluding Statement of the IMF Mission onEuro-Area Policies (In the Context of the 2005 Article IV Consultation
Discussions with the Euro-Area Countries)," Washington, D.C.: IMF, May29, 2005. Available from International Monetary Fund website. Accessedon February 24, 2010. (IMF 2005)http://www.imf.org/external/np/ms/2005/052905.htm
International Monetary Fund, "Euro Area Policies: Staff Report; StaffSupplement; Public Information Notice on the Executive Board Discussion;and Statement by the Executive Director on Euro Area Policies," CountryReport No. 06/287, Washington, D.C.: IMF, August 2006. Available fromInternational Monetary Fund website. Accessed on February 24, 2010.(IMF 2006)http://www.imf.org/external/pubs/ft/scr/2006/cr06287.pdf
International Monetary Fund, "Euro Area Policies: 2007 Article IVconsultations - Staff Report; Staff Supplement; Public Information Noticeon the Executive Board Discussion; and Statement by the ExecutiveDirector for Member countries," Country Report No. 07/260, Washington,D.C.: IMF, July 2007. Available from International Monetary Fund website.Accessed on February 24, 2010. (IMF 2007)http://www.imf.org/External/Pubs/FT/SCR/2007/cr07260.pdf
International Monetary Fund, “Euro Area Policies: 2009 Article IVConsultation—Staff Report; Public Information Notice on the ExecutiveBoard Discussion; and Statement by the Executive Director for MemberCountries,” Country Report No. 09/223, Washington, D.C.: IMF, July 2009.Available from International Monetary Fund website. Accessed onFebruary 24, 2010. (IMF 2009)http://www.imf.org/external/pubs/ft/scr/2009/cr09223.pdf
International Monetary Fund's Special Data Dissemination Standardwebsite. Accessed on February 24, 2010. (IMF SDDS website)http://dsbb.imf.org/Applications/web/sddscountrycategoryl...
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International Standards on Auditing
LEVEL OF COMPLIANCE: ENACTED
SummaryThe National Commission for Listed Companies and the StockExchange (CONSOB) requires the use of Italian AuditingStandards in the audit of listed entities, their significantsubsidiaries and holding companies, and other public interestentities (PIEs). These standards are set by the ConsiglioNazionale dei Dottori Commercialisti e Degli Esperti Contabili(CNDCEC) and have recently become mandatory for non-PIEs as well. A 2010 International Federation of Accountants(IFAC) report states that the Italian Auditing Standards are“strictly” based on International Standards on Auditing (ISAs),with minor exceptions related to national requirements andadditional procedures. The IFAC report also states that Italyimplemented the EU Directive on Statutory Audit (2006/43/EC) in November 2009. The Directive requires all statutoryaudits of annual and consolidated accounts to be carried outin accordance with the international auditing standard adoptedby the EU. Although such standards are currently pendingadoption by the EU, it is widely anticipated that ISAs as issuedby the International Auditing and Assurance Standards Boardof the IFAC will be adopted.
General OverviewIn its 2006 Financial Sector Assessment Program of Italy, theInternational Monetary Fund states that Italy has beenharmonizing its national auditing standards with InternationalStandards on Auditing (ISAs) since 2003, after the NationalCommission for Listed Companies and the Stock Exchange(CONSOB) called for the adoption of the internationalsstandards on auditing. According to a self-assessmentsubmitted to the International Federation of Accountants(IFAC) by the Consiglio Nazionale dei Dottori Commercialisti eDegli Esperti Contabili (CNDCEC) in 2009, the Italian AuditingStandards are “closely based” (p. 25) on the ISAs. However,a subsequent IFAC report published in February 2010, statesthat ISAs have been translated into Italian and adopted on ade facto basis, as the Italian Auditing Standards. The nationalstandards, per the same report, are “strictly based on ISAs, and
include only minor modifications due to national requirementsand limited additional procedures” (p. 16). The IFAC reportclassified Italy as a jurisdiction whose “national standards arethe ISAs” (p. 4). The definition of this classification impliesthat the modifications made to the ISAs in adapting them fornational application, should be in line with the InternationalAuditing and Assurance Standards Board (IAASB) of the IFACModifications Policy.
Prior to 2008, national auditing standards were set by theConsiglio Nazionale dei Ragionieri e Periti Commerciali(CNRPC) and the Consiglio Nazionale dei DottoriCommercialisti (CNDC). The CNRPC and CNDC on January1, 2008, merged to form the CNDCEC, as is indicated in thepaper titled "The Italian Accountancy Profession" available onthe CNDCEC's website. The updated 2006 CNDCEC reportstates that under Legislative Decree No. 58 of 1998, listedentities, their significant subsidiaries and holding companies,and other public interest entities (PIEs) are required to applythe Italian Auditing Standards as set by the CONSOB inconsultation with the CNDCEC. Non-listed companies on theother hand, per the 2009 CNDCEC report, are not subjectto similar requirements. Instead, the report states that theCNDCEC “recommends the principles to its members” (p.23). An IFAC report subsequently published in February 2010,states that the Italian Auditing Standards are now mandatory inthe audits of even non-PIEs, citing it as a “significant change” (p.17).
A CNDCEC's 2005 self-assessment notes that the Bank of Italy(BoI) is the authority that regulates banks and similar financialinstitutions. The BoI, however, does not have the power toenact auditing standards; however, it can issue additionalfinancial reporting regulations that banks have to apply. Othercompanies like non-financial institutions have no regulatoryauthority to enforce auditing standards. Insurance companiesare supervised by the Institute for the Supervision of PrivateInsurance Undertakings, which have the power to verifycompliance with the imposed rules and regulations, request
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information and conduct inspections of the regulated entities.In addition, it can summon the auditors of the auditing firmsthat have the duty of auditing the financial statement ofinsurance companies.
On May 17, 2006, Directive 2006/43/EC of the EuropeanParliament and the Council came into force requiring allstatutory audits to be carried out on the basis of internationalauditing standards as adopted by the European Commission(EC). Although such standards are currently pending adoptionby the EU, it is widely anticipated that ISAs as issued by theIAASB of the IFAC will be adopted. The Directive aims athigh-level, though not full, harmonization of statutory auditrequirements. EU member states were required to adopt andpublish the provisions necessary to comply with the Directiveby June 29, 2008. The Directive indicates that in an effortto achieve a maximum degree of harmonization, EU memberstates should be allowed to impose additional national auditprocedures or requirements which stem from specific nationallegal requirements. The 2010 IFAC report states that Italy hasimplemented the Directive via a legislative decree enacted inNovember 2009.
Principle: ISA 200 Overall Objectivesof the Independent Auditor and theConduct of an Audit in Accordancewith International Standards onAuditing (effective 2009)[Enacted]
An IFAC report published in February 2010 states that ISAshave been translated into Italian and adopted on a de factobasis as the Italian Auditing Standards. The report further statesthat these standards are “strictly based on ISAs, and includeonly minor tailoring due to national requirements and limitedadditional procedures” (p. 16).
Principle: ISA 210 Agreeing theTerms of Audit Engagements(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 220 Quality Controlfor an Audit of Financial Statements(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 230 AuditDocumentation (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 240 The Auditor’sResponsibilities Relating to Fraud inan Audit of Financial Statements(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 250 Consideration ofLaws and Regulations in an Audit ofFinancial Statements (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 260 Communicationsof Audit Matters with Those ChargedWith Governance (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 265 CommunicatingDeficiencies in Internal Control to
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those Charged with Governance andManagement (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 300 Planning an Auditof Financial Statements (effective2009)[Enacted]
See ISA 200.
Principle: ISA 315 Understanding theEntity and Its Environment andAssessing the Risks of MaterialMisstatement (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 320 Materiality inPlanning and Performing an Audit(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 330 The Auditor’sProcedures in Response to AssessedRisks (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 402 AuditConsiderations Relating to an EntityUsing a Service Organization(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 450 Evaluation ofMisstatements Identified during theAudit (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 500 Audit Evidence(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 501 AuditEvidence—Specific Considerationsfor Selected Items (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 505 ExternalConfirmations (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 510 Initial AuditEngagements—Opening Balances(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 520 AnalyticalProcedures (effective 2009)[Enacted]
See ISA 200.
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Principle: ISA 530 Audit Sampling(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 540 Audit ofAccounting Estimates (effective2009)[Enacted]
See ISA 200.
Principle: ISA 545 Auditing FairValue Measurements and Disclosures(effective 2004, superseded by ISA540 in December 2009)[Enacted]
See ISA 200.
Principle: ISA 550 Related Parties(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 560 Subsequent Events(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 570 Going Concern(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 580 WrittenRepresentations (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 600 SpecialConsiderations—Audits of GroupFinancial Statements (Including theWork of Component Auditors)(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 610 Using the Work ofInternal Auditors (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 620 Using the Work ofan Auditor’s Expert (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 700 Forming anOpinion and Reporting on FinancialStatements (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 705 Modifications tothe Opinion in the IndependentAuditor’s Report (effective 2009)[Enacted]
See ISA 200.
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Principle: ISA 706 Emphasis ofMatter Paragraphs and Other MatterParagraphs in the IndependentAuditor’s Report (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 710 ComparativeInformation—Corresponding Figuresand Comparative FinancialStatements (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 720 The Auditor’sResponsibilities Relating to OtherInformation in DocumentsContaining Audited FinancialStatements (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 800 SpecialConsiderations—Audits of FinancialStatements Prepared in Accordancewith Special Purpose Frameworks(effective 2009)[Enacted]
See ISA 200.
Principle: ISA 805 SpecialConsiderations—Audits of SingleFinancial Statements And SpecificElements, Accounts Or Items Of AFinancial Statement (effective 2009)[Enacted]
See ISA 200.
Principle: ISA 810 SpecialConsiderations—Engagements toReport On Summary FinancialStatements (effective 2009)[Enacted]
See ISA 200.
Sources of AssessmentConsiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili,"Response to the IFAC Part 2, SMO Self-Assessment Questionnaire," self-assessment prepared as a part of the International Federation ofAccountants' Member Body Compliance Program, September 2006(updated April 2009). Available from International Federation ofAccountants website. Accessed on February 18, 2010. (CNDCEC 2006/2009)http://www.ifac.org/ComplianceAssessment/part_2_survey/IT...
Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili,"The Italian Accountancy Profession," n.d. Available from ConsiglioNazionale dei Dottori Commercialisti e Degli Esperti Contabili website.Accessed on February 18, 2010. (CNDCEC n.d.)http://www.cndcec.it/PORTAL/Documenti/2266_ebgqvginnn.pdf
European Commission, “Scoreboard on the Transposition of the StatutoryAudit Directive,” November 2009. Available from European Commissionwebsite. Accessed on February 18, 2010. (EC 2009)http://ec.europa.eu/internal_market/auditing/docs/dir/01_...
International Federation of Accountants, “IFAC Member Body ComplianceProgram: Basis of ISA Adoption by Jurisdiction,” February 2010. Availablefrom International Federation of Accountants website. Accessed onFebruary 18, 2010. (IFAC 2010)http://web.ifac.org/download/basis-of-isa-adoption.pdf
Relevant OrganizationsConsiglio Nazionale dei Dottori Commercialisti (CNDC) (in Italian)http://www.cndc.it/CNDC/home/home.jsp
Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili(CNDCEC) (in Italian)http://www.cndcec.it/PORTAL/home/jsp/home.jsp
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Italian Association of Auditors - Associazione Italiana Revisori Contabili(Assirevi) (in Italian)http://www.assirevi.it/
Italian Stock Exchange - Borsa Italiana (BI)http://www.borsaitalia.it
Ministry of Economy and Finance - Ministero dell'Economia e delle Finanze(MEF) (in Italian)http://www.tesoro.it/
Ministry of Justice - Ministero della Giustizia (MoJ) (in Italian)http://www.giustizia.it/giustizia/
National Commission for Listed Companies and the Stock Exchange -Commissione Nazionale per le Società e la Borsa (CONSOB)http://www.consob.it/mainen/index.html
Organismo Italiano di Contabilità (OIC) (in Italian)http://www.fondazioneoic.it/
Supervisory Authority for Private Insurance Undertakings and InsuranceUndertakings of Public Interest - Istituto per la Vigilanza sulle AssicurazioniPrivate e di Interesse Collettivo (ISVAP) (in Italian)http://www.isvap.it/isvap/imprese_jsp/HomePage.jsp
Bank of Italy - Banca d'Italia (BoI)http://www.bancaditalia.it/bancaditalia
Relevant Legislation/RegulationCivil Code, 1942 - Codice Civile, 1942 (as of 2009) (in Italian)http://www.altalex.com/index.php?idnot=34794
Legislative Decree Corporate Law Reform No. 6, 2003 - DecretoLegislativo Riforma organica della disciplina delle societa' di capitali esocieta' cooperative No. 6, 2003 (in Italian only)http://www.altalex.com/index.php?idnot=5608
Legislative Decree Consolidated Law on Financial Intermediation No. 58,1998 - Decreto Legislativo recante Testo Unico delle Disposizioni inMateria di Intermediazione Finanziaria, No. 58, 1998 (with amendmentsthrough 2009)http://www.consob.it/documenti/english/laws/fr_decree58_1...http://www.consob.it/documenti/Regolamentazione/normativa...
Legislative Decree per Directive N. 84/253/CEE on Auditors No. 88, 1992- Decreto Legislativo di Attuazione della Direttiva N. 84/253/CEE, Relativaall’Abilitazione delle Persone Incaricate del Controllo di Legge deiDocumenti Contabili No. 88, 1992 (in Italian)http://www.revicom.eu/leggi/D.LGS.88%20del%201992.pdf
Legislative Decree per Directive N. 86/635/CEE Relative to the Annual andConsolidated Accounts of Banks and Financial Institutions and per DirectiveN. 89/117/CEE, relative to the Obligation of the Publication of AccountingRecords of the Branches, Established in a Member States, of Credit andFinancial Institutions with Social Center Outside of Such Member StatesNo. 87, 1992 - Decreto Legislativo recante Attuazione della Direttiva N.86/635/CEE, relativa ai Conti Annuali ed ai Conti Consolidati delle Banchee degli Altri Istituti Finanziari, e della Direttiva N. 89/117/CEE, relativa Agli
Obblighi in Materia di Pubblicità dei Documenti Contabili delle Succursali,Stabilite in uno Stato Membro, di Enti Creditizi ed Istituti Finanziari conSede Sociale Fuori di Tale Stato Membro, No. 87, 1992 (in Italian)http://www.tuttocamere.it/files/dirsoc/1992_87.pdf
Legislative Decree on the Accounting Profession and Experts per article 2of the law No. 34 of 24 February 2005 No. 139, 2005 - DecretoLegislativo di Costituzione dell'Ordine dei dottori commercialisti e degliesperti contabili, a norma dell'articolo 2 della legge 24 febbraio 2005, n. 34No. 139, 2005 (in Italian)http://www.unimore.it/esamidistato/doc/DLgs28giugno2005n1...
Decree No. 99, 1999
EU Auditing-Related Directiveshttp://ec.europa.eu/internal_market/auditing/directives/i...
Directive 2006/43/EC of the European Parliament and of the Council of 17May 2006 on Statutory Audits of Annual Accounts and ConsolidatedAccounts, amending Council Directives 78/ 660/EEC and 83/349/EEC andrepealing Council Directive 84/253/EEChttp://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_157...
Regulation (EC) No 1606 of the European Parliament and of the Councilof 19 July 2002 on the Application of International Accounting Standards,2002http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CEL...
Supplementary SourcesConsiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili,"Assessment of the Regulatory and Standard- Setting Framework," self-assessment prepared as part of the International Federation ofAccountants' Member Body Compliance Program, April 2005. Availablefrom International Federation of Accountants website. Accessed onFebruary 18, 2010. (CNDCEC 2005)http://www.ifac.org/ComplianceAssessment/published_survey...
Deloitte and Touche Tohmatsu IAS Plus website. Accessed on February 18,2010. (Deloitte IAS Plus website)http://www.iasplus.com/country/italy.htm
International Federation of Accountants website. Accessed on February 18,2010. (IFAC website)http://www.ifac.org/About/MemberBodies.tmpl
International Monetary Fund, "Italy: Financial Sector Assessment Program -Detailed Assessment of Observance of the Insurance Core Principles,"Country Report No. 06/82, Washington, D.C.: IMF, March 2006. Availablefrom International Monetary Fund website. Accessed on February 18,2010. (IMF 2006a)http://www.imf.org/external/pubs/ft/scr/2006/cr0682.pdf
International Monetary Fund, "Italy: Financial Sector Assessment Program--Detailed Assessment of Implementation of the IOSCO Objectives andPrinciples of Securities Regulation," Country Report No. 06/83,Washington, D.C.: IMF, March 2006. Available from International MonetaryFund website. Accessed on February 18, 2010. (IMF 2006b)http://www.imf.org/external/pubs/ft/scr/2006/cr0683.pdf
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Methodology Note
For a more thorough discussion of our methodology, pleasevisit our website. Below you find an explanation of qualifyingcriteria for information used in eStandardsForum's standardreports as well as a definition of the Levels of Compliance.
SourcesSources used in this report are information that is objectiveand freely available to the public that pertain to a country'scompliance with the requirements of any given standard. Thedefining characteristics of eStandardsForum's sources arepublic availability and objectivity. For example, third-partyassessments of a country will take precedence overselfassessments. Nevertheless, in the absence of third-partyassessments, self-assessments form an important source ofinformation.
Levels of ComplianceThe compliance categories assess information on two levels.On the first level, it measures the public availability ofinformation on a country's compliance with the 12 KeyStandards. If the level of information is unsatisfactory, a rating of"Insufficient Information" is assigned. If the level of informationis deemed sufficient, a rating ranging from "No Compliance"to "Full Compliance" is assigned, depending on how well thepublicly available sources have evaluated the country'sregulatory framework for the respective standard. Theseparticular categories have been selected because they mirrorthe process a country follows when implementing standardsand codes.
FULL COMPLIANCE: There is publicly availableinformation indicating that the country has incorporated theprinciples of the relevant standard into laws or regulations, andthat these principles are currently being applied and followedin an effective, consistent, and transparent manner.
COMPLIANCE IN PROGRESS: There is publicly availableinformation indicating that the country has incorporated theprinciples of the relevant standard into laws or regulations andthat there has been significant progress made towards theeffective enforcement of the laws or regulations by regulatorsand supervisors, albeit with minor shortcomings.
ENACTED: There is publicly available information indicatingthat the country has incorporated most of the principles ofthe relevant standard into laws or regulations. The Enactedcategory does not address the actual enforcement of the lawsor regulations.
INTENT DECLARED: The country has made a formal,public, and authoritative declaration that it will incorporate theprinciples of the relevant standard into laws or regulations andwill adhere to the standard.
NO COMPLIANCE: There is publicly available informationindicating that the country has not incorporated the principlesof the relevant standard into laws or regulations or has takenany steps to comply with the relevant standard.
INSUFFICIENT INFORMATION: There is not enoughinformation publicly available to make an assessment as to thecountry's level of compliance with the relevant standard.
Financial Standards Report ItalyMarch 2010
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