Brussels, 25/04/2013 (Agence Europe) - The European Parliament's legal affairs committee recommends more relaxed changes to auditing rules than those suggested by the European Commission, particularly the requirement on the compulsory rotation of auditors (see EUROPE 10498). The aim is to conclude the talks with the Council of Ministers later this year. The Council is expected to publish its negotiating position next month.
Rapporteur Sajjad Karim (ECR, UK) says the main aim of the draft legislation is to encourage greater confidence in an industry blamed for failing to prevent the onset of the 2008 financial crisis. He says the agreement voted though by the legal affairs committee is a compromise in which nobody got everything they wanted. The S&D, Greens/EFA and GUE/NGL rejected the agreement, which was voted through with a qualified majority of 15 to 10, but Sajjad Karim says that, if a battle ensues with the Council of Ministers, the majority is very slim indeed.
“Reforms tackle the question of appointment of firms in particular by introducing requirements around mandatory tendering and mandatory rotation of firms. Such a combination of approach will tackle problems of over familiarity between auditor and audited company, yet avoid disruption and high cost from EC proposal of rotation every 6 years. Only 20% FTSE 350 companies have had the same auditor for more than 20 years”, explained Karim. After tough talks, the maximum period before rotation becomes compulsory has been set at 14 years. The Commission recommended six years and the S&D seven.
The member states may want to extend the maximum period to 25 years for the auditing of bodies of public interest (banks, insurance companies and blue chip companies) when they issue a new compulsory call for tender, a full assessment of international standards or are subject to a joint audit by two or more auditing companies, said Liberal MEPs Cecilia Wikström (Sweden) and Alexandra Thein (Germany) in a press release.
Black list. The MEPs say that the European Commission's desire to ban auditing companies from supplying additional services (on top of auditing) is going too far because it would prevent small auditing companies from gaining market share in an industry dominated by the “Big Four” (KPMG, Ernst&Young, PriceWaterhouseCoopers and Deloitte Touche Tohmatsu). The committee says that any service other than auditing subject to a compulsory call for tender should not be added to a black list of companies breaking international ethical standards (something the European Parliament has been calling for). The committee says that examples of services that should not be allowed are those which have an impact on balance sheets, which impact on the composition of the management board of the company audited, relate to salaries, or are provided as part of commercial negotiations or which provide legal assistance in a court case.
Karim added: “The compromise agreed, with the key support of the Liberal and Democrat group would fix the maximum contract period for an audit company at 14 years with a backstop at 25 years for member states requesting a derogation when their public interest entities (PIEs) have carried out either mandatory re-tendering of audit contracts or a comprehensive assessment or have been subject to a joint audit by two or more firms”. (MB/transl.fl)