Called to account

30 November 2011 By Quentin Webb, George Hay Follow @gfhay

Draft proposals include various ploys to unpick the auditor oligopoly. But they omit reforms that would offer real help to new entrants. Other suggestions look ripe for watering down. The Big Four may have more to fear from the UK’s Competition Commission probe.

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On Nov. 30 the European Commission announced proposals to reform the audit market, which is currently dominated by the so-called Big Four accountancy firms: Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.
The proposals would separate EU-based audit and non-audit activities. They would also require mandatory rotation of the firms that audit banks, insurers and listed companies every six years and introduce a “European passport” to create a continent-wide market. They would also require open tenders in the audit selection process.
EU Internal Market Commissioner Michel Barnier dropped an earlier plan to demand that firms appoint joint auditors, under lobbying from Britain and other states.
BDO, a smaller auditor, said reversals on this, and the requirement for a mandatory rotation meant the reforms were “worse for the market than no proposals at all.” Ernst & Young said the plans would have minimal impact on preventing future financial crises.
European Union states and the European Parliament will have the final say on the draft law. Commission officials said they hoped new rules could be in place within three to five years.

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