Divisions within Europe over audit rotation

by Richard Crump

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28 Sep 2012

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European commission

IN THE LATEST TWIST to wrangling over EC proposals to inject more competition into the market for large company audits, proposals by German MEP Jürgen Creutzmann have highlighted a split among EU policymakers.

In a draft report, Creutzmann, member of the European Parliament's Committee on Industry, Research and Energy, has called for audit tenures to last no more than seven years and for a ban on the provision on non-audit services.

Seven-year rotation would render "the selection process more transparent" and give the audit committee more choice, Creutzmann said in the report.

In addition, the report suggests that all audit-related services be made subject to the prior approval of the audit committee, and supports the inclusion of an additional report to the audit committee.

Creutzmann's ideas about auditor rotation are much more strict than those proposed by British MEP Sajjad Karim earlier this month.

In a report published by European parliament's legal affair committee, Karim, who is steering the reform through parliament, suggested said that auditor rotation should only have to take place every 25 years.

In contrast to Europe, UK reporting watchdog the FRC today introduced mandatory audit tendering in the corporate governance code.

As part of a series of amendments to the code, FTSE 350 companies should put the external audit out to tender at least every ten years or explain why they have failed to comply, the FRC said.

More regular tendering should "help counter any misconception that long audit tenure reflects a lack of competition by showing that the quality of the audit is periodically subject to challenge", said Richard Sexton, board member for reputation and policy, PwC.

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