Brussels, 23/09/2011 (Agence Europe) - EU Internal Market Commissioner Michel Barnier will shortly be unveiling an ambitious draft regulation that could initiate a sea-change in auditing in Europe by 2015. According to a draft document seen by this newsletter, he is considering introducing mandatory joint audits for large companies quoted on the stock exchange. Rotation of auditing firms will also be compulsory after a nine-year period.
The main aim of the new legislation is to introduce competition in the auditing of big companies, currently dominated by the Big Four (KPMG, Ernst&Young, PriceWaterhouseCoopers and Deloitte Touche Tohmatsu). A private sector expert commented that it was a very far-reaching proposal and Barnier has deliberately made a highly political decision to put himself in a strong position vis-à-vis the Council of Ministers. Although not fundamentally opposed to greater competition in the audit market, some multinationals doubt that the joint audit would be effective as smaller auditing firms wouldn't have the necessary level of expertise.
Joint auditing would be made compulsory for the following public interest entities: the 10 biggest companies on the stock exchange in each member state with assets or value on the stock market of over €1bn. These companies would have to choose an auditing firm with less than a 15% share of the market, unless there are objective reasons for not doing so.
Rotation. To ensure that multinationals are not always audited by the same firm, the commission wants the auditing contract to be for between two and five years only. A contract could only be renewed once, for no more than five years.
Transition measures are planned for both the joint auditing and the compulsory rotation of audit firms for contracts signed before and after publication of the draft legislation by the European Commission and contracts still in force when the new regulation comes into force.
Commissioner Barnier is planning to prevent auditing firms from doing other business, like checking accounts and certifying company governance by not allowing fees for such services to comprise more than 10% of the cost of certifying accounts. Tax and internal audit consultancy services will be banned. (MB/transl.fl)