European Parliament’s legal affairs committee hears report from MEP on mandatory rotation every 25 years which receives challenges from some member states
TWO MEMBER STATES have challenged proposed watered-down versions of audit reforms put to the European parliament this week.
In the European Parliament’s legal affairs committee debate, on a report put forward by British-based MEP Sajjad Karim, Spanish representative Antonio Masip Hidalgo said he wanted to see the law “more reformist” by including joint audits.
This was followed by Germany’s representative Angelika Niebler, who claimed they must be “courageous” to guarantee audit quality in a market dominated by the Big Four, reports Reuters.
Currently, the European Commission has proposed a mandatory auditor rotation of every six years, which is extended to every nine years for companies with joint audits. However, Karim’s report suggested auditor rotation should take place every 25 years.
When questioned about the longer period, he argued the average audit tenure among large companies is about 48 years and that unfair competition should be challenged by competition authorities – not lawmakers.
A report on the Competition Commission’s investigation in the UK’s audit market is due to be released in October.
In a letter to the EC’s internal markets commissioner Michel Barnier, investors representing €732bn (£590.5bn) of funds under managment in Europe suggested audit committees should set a time limit on auditor rotation dependent on company size and complexity.
However, they recommend that audits should be put up for tender every five to seven years, with an upper limit of 15 years for the same auditor, with a cooling-down period of five years before reappointment to safeguard shareholders’ long-term interest.
For any European laws to be changed, an agreement needs to be reached by the member states.