Weaker audit reform proposals unveiled

MANDATORY JOINT AUDIT is nowhere to be seen in a raft of softer reform proposals unveiled today by the European Commission.

Initial plans could have forced the largest firms to hive off their audit practice, but the final proposals are less hard-line and might result in an effective extension of existing rules.

Mandatory joint audit, long favoured by mid-tier firms for its competition-boosting potential, has also been shelved, although joint audits are “encouraged” by mandatory rotation rules.

In one of the few fortifications to the original proposals, the maximum engagement period has been reduced to six years from nine years. However, companies that opt for joint audit are allowed to keep their auditors for up to nine years.

Mandatory tendering remains, with the largest public-interest entities obliged to adopt an open, transparent process when selecting new auditors.

Internal markets commissioner Michel Barnier (pictured) has also rowed back on Europe-wide supervision of audit. Initially suggesting oversight should be consolidated in Brussels, he is now calling for the coordination of auditor supervision activities to be ensured within the framework of the European Markets and Securities Authority.

The proposal to create a single market for statutory audits remains, with the introduction of a European passport for the audit profession.

Barnier said: “Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary: we need to restore confidence in the financial statements of companies. Today’s proposals address the current weaknesses in the EU audit market, by eliminating conflicts of interest, ensuring independence and robust supervision and by facilitating more diversity in what is an overly concentrated market, especially at the top-end.”

Originally due to be released last week, mid-tier firms have suggested Big Four-inspired lobbying was behind the delay and subsequent softening of the reforms.