On 10 March the Big Four accounting firms, along with Grant Thornton and
French professional bodies for accountants, took the French government to court.
The highly unusual step was an attempt to annul a new code of practice issued
by a Ministry of Justice decree last November. The Big Four believe that the
code will damage their ability to offer audit and advisory work.
The controversial ‘deontology code’, drawn up by government-appointed
regulatory body Haut Conseil du Commissariat aux Comptes, or H3C, says that no
accounting firm may give an audit to a company if it has also provided the
company with advisory services in the two preceding years.
The general feeling among accountants in Paris is that the regulatory system
and the French government have let them down.
One Big Four partner, who refused to be named due to the ongoing court case,
said: ‘The government does not understand anything about what we do and they
have created a big problem.’
In France, unlike the UK or US, companies must be dual-audited. The largest
companies will use two of the Big Four firms for the audit and the other two for
In such a limited market for accounting services, putting a two-year lockout
on offering an audit potentially prevents a company from ever changing its Big
Four auditors if it has already given advisory work to the other Big Four firms.
The Big Four partner added: ‘Because we have dual audits, companies will
never change auditors. If they do they will have to go to smaller accountants,
and they will not get the best service.’
The Big Four are hoping that by going to the Conseil d’Etat, France’s highest
court, they can have the government decree annulled and renegotiate a new
deontology code with the French regulator. A response from the court is expected
later this month.
But the Big Four are not taking the regulator and code author, H3C, to court.
H3C is not a party to the hearing. This is because it is the government that
formalised the code by decree. It is only by forcing the French Ministry of
Justice to annul the current decree that the Big Four can hope H3C will draw up
a replacement code.
Philippe Steing, secretary general of H3C, said: ‘We gave our opinion on a
code of ethics; it is the government who decides on whether or not to pass it as
Although this appears to be a national issue, the code also has an
extra-territorial dimension and may affect the UK. Advisory work in the UK given
to a French company could trigger the code’s lockout rule in France.
The roots of this controversial code go back to the Enron scandal in the US
and the collapse of Arthur Andersen in 2002. Like the UK, France has sought to
prevent a similar catastrophe from happening again.
In 2003, the government passed the loi de sécurité financière, which severely
limited the advisory work that the big accounting firms could offer in unison
with an audit. Another part of that legislation was the creation of H3C.
The French system is similar to the lockout that the US Securities and
Exchange Commission applied in 2003 to advisory services for the auditors of
listed companies. However, in the US, companies are not usually dual-audited, so
the lockout rule does not cause so much friction with the Big Four there.
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