Brussels, 18/11/2011 (Agence Europe) - EU Internal Market Commissioner Michel Barnier will unveil draft legislation before Christmas that will turn the world of auditing upside down over the next three years by creating diversity and eliminating conflicts of interest, he explained on Friday 18 November 2011.
The Commissioner is planning to introduce joint auditing for big companies, along with the compulsory rotation of auditors (as set out in draft legislation in September 2011, see EUROPE 10459). The updated version is equally ambitious, making joint auditing compulsory for big companies (described as “public interest entities”), in other words the top ten companies on the stock exchanges in each member state and companies with a share value (or assets value) of over a billion euro. Such companies will have to use a small auditing firm (holding no more than 15% of the market) unless this is not possible for “objective reasons”. The Commissioner wants auditing companies to sign contracts for two to five years, which could be renewed only once (for up to five years).
It remains to be seen whether the ambitious legislation will be accepted by the other EU commissioners. Earlier this week, they rejected Barnier's plans to shake up rating agencies, a dozen member states forcing him to backtrack on his idea of giving the European Securities Market Authority, ESMA, the power to ban the rating (by rating agencies registered in the EU) of countries under pressure from financial instability (see EUROPE 10495). An expert from the private sector said he did not think there would be the same level of opposition to his ideas on auditing, on which Barnier's team aims to be as far-reaching as in its initial plans to rein in rating agencies.
Reacting to initial information in the media about the new legislation, the European Accountants' Federation (FEE) warned in a press release of the dangers of focusing solely on the technical structure of the auditing market, saying that in the current format, the new rules are very prescriptive and potentially highly damaging, leading to a significant increase in cost and red tape for both companies and auditors alike without introducing any significant benefits in return. (MB/transl.fl)