A DEAL forcing European Union listed companies to change their auditors once every ten years could be hammered out by December, the MEP responsible for negotiating the reforms said on Monday.
Sajjad Karim, the British MEP who coordinated the present version of the audit legislation through the European Parliament, is currently steering the negotiations though informal tripartite meetings between parliament, the EU council and European Commission.
Karim is proposing that companies switch their auditor every decade, with the option to stick with the same firm for another ten years, provided certain conditions are met such as putting the work out to tender, the audit committee agrees to an extension or the company appoints a second auditor to provide a joint audit.
“Our proposal would be a powerful antidote to shake up the audit market and inject the transparency and competitiveness it requires. It is a fine line to balance the needs of investor confidence with that of market competitiveness, but we believe a ten + ten option is the best for everybody,” Karim said in a statement.
The reforms, originally proposed by EC internal markets commissioner Michel Barnier in 2010, are intended to reduce the concentration of the audit services being provided by the Big Four accountancy firms of PwC, KPMG, Deloitte and EY.
The rules are now far from the version initially mooted by the EC, which had called for a six year rotation period and a general ban on offering non-audit services. The issue of auditor independence and the provision of non-audit services has proved controversial with debate centred around whether there should be a “black list” of banned services.
“We are pleased that the negotiators recognise a need for certainty and to be practical in our approach and we are hammering out a deal on which non-audit services should be restricted,” Karim said.
“Although the willingness from all sides to conclude audit reform negotiations as swiftly as possible is highly admirable, we continue to be at an impasse over some key issues and the stumbling blocks still remain.”
The next trilogue negotiations should take place on the first week of December, which Karim hopes will be “fruitful”.
“As we try to push this major piece of legislation through before the end of the mandate, I am optimistic that we can progress to a common approach on the key issues,” he said.
In October, the UK Competition Commission introduced mandatory ten year audit tendering rules for FTSE 350 companies, with those that tender less frequently than five years required to report in which financial year they plan to put the audit engagement out to tender.
Signed into law by president Barack Obama in 2010, the Dodd-Frank legislation has tightened regulation of the US financial system
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