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Audit reforms are a great compromise: no one is happy

“YOU’RE UNHAPPY. I’M UNHAPPY TOO. A good compromise is when both parties are dissatisfied, and I think that’s what we have here.”

To quote Larry David, the creator of Curb Your Enthusiasm. The audit reforms voted through by the European Parliament’s Legal Affairs Committee (Juri) yesterday are the essence of a good compromise.

The proposals, which include forcing companies to change their auditor every 14 years – or every 25 if certain safeguard are in place – are not as draconian as those initially suggested by the European Commission.

The Big Four audit firms have been against any form of mandatory rotation, while the mid-tier have sought changes that will let them get a foot in a hitherto closed market. But it seems that the changes put forward by Sajjad Karim, the UK MEP charged with the unenviable task of steering the reforms through parliament, don’t quite satisfy either party.

Some mid-tier firms have welcomed the 14-year period, but bemoaned the 25-year option. Others are miffed that the initial six-year period trumpeted by the EC was ditched. James Roberts, senior audit partner at BDO, says the proposals are “worthy, but wet” and “don’t appear to do much, if anything, to improve competition”.

Unlike the UK Competition Commission’s own probe into the market, the European proposals are aimed at quality not competition. Even in this respect the profession has not been appeased, with its impact described as “marginal at best” by large and mid-sized firms alike.

Larry David was referring to Henry Clay, an American statesman from the 18th and 19th centuries who was known as the Great Compromiser. By steering a reasonable middle course where no one has quite got what they want, Karim may well have assumed Clay’s mantle.

Richard Crump is the deputy editor of Accountancy Age & Financial Director

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