Brussels drops plans for mandatory audit committees
Compromise deal agreed after criticism from business leaders
The European Union has backed away from introducing mandatory in-house audit
committees after months of lobbying from industry.
The plans would have placed companies under a set of onerous rules forcing
them to set up internal audit committees, and outline the composition and
timescale of the directors serving on them.
Under a compromise deal, reported by the Financial Times today, the
EU rules will still determine the functions of an audit committee, but companies
will be able to opt out if they can prove the use of a ‘similar body carrying
out equivalent functions’.
The CBI had argued that the UK already has strong audit rules and the plans
were potentially more onerous that Sarbanes-Oxley. EU commissioners indicated in
July that they would be willing to compromise if the ‘audit function could be
ring-fenced’.
The EU should now publish a pan-European directive in October. This will outline
the rules that will force companies to rotate the partners of their audit firms
to prevent the type of fraud seen in Enron and Parmalat.
The directive will also contain a commitment to investigate whether
accountancy firms should be given legal protection against negligence claims.