The French proposals have been put forward in reaction to the Enron and WorldCom scandals with the hope it will provide protection against similar cases happening in France.
The legislation, due to come into force in 2003, aims to tackle concerns over auditor independence by preventing audit firms from undertaking work in corporate finance, insolvency, legal and tax services, and consulting services.
But Neil Lerner, head of risk management at KPMG UK, said the legislation goes too far in restricting work practices and could have much more widespread consequences. ‘Depending on how you read the legislation, it could mean that if any member of a network (of audit firms) provided non-audit services anywhere in the world then it could be precluded from doing audit work in France,’ he said.
KPMG believes the French legislation may be partly driven by the desire to protect the country’s smaller auditors from losing work to the Big Four and is angry as the planned legislation not only restricts work within the country, but could also apply to foreign operations and subsidiaries of French companies.
The proposals come at a time when the European Union is looking to implement recommendations on audit practice across the entire community in order to provide a level playing field for business services companies.
‘This legislation would go far beyond EU recommendations and would try to influence behaviour beyond EU boundaries,’ said Lerner. ‘There is no evidence that the provision of non-audit services influences audit quality.’
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