Another week, another call for a new financial watchdog. The latest plans come from the European Federation of Accountants (FEE). In its own words, FEE wants to see a new 'robust public oversight system' facilitated by 'the swift introduction of a European coordination mechanism that would develop common principles for member state oversight systems'.
Translating from Eurocrat to English, what FEE wants is the creation of a cross-border audit regulator, with powers of oversight over audit regulators based in the European Union’s 15 member states.
The aims are laudable, the practicalities worrying.
In many ways FEE is right. ‘Confidence,’ as the body argues, ‘in the public oversight of the audit profession is a fundamental prerequisite to achieving high-quality financial reporting, as auditors can only lend credibility to financial statements if those who rely upon their reports are confident that the auditor has conducted the audit to the highest standards.’
But a new board would risk becoming an unwelcome layer of bureaucracy, and may do little to improve accountability in a sector already groaning under the weight of regulation. Already UK auditors answer to a number of different domestic regulators and increasingly, under Sarbanes-Oxley, to US regulators if they are working for international clients.
Another European layer could do more to hinder than help.
Yet FEE’s proposals are worth considering. It recognises that ‘public oversight structures are best organised at member state level’. And it acknowledges that any regulator should have non-practitioners in the majority, something that has been recognised here.
And if the new EU body only acts in a coordinating fashion, it could serve a useful purpose. There is scope for a body that develops proposals for common principles across (domestic) European audit regulators and oversees the organisation of national public oversight arrangements. Suggestions for improvements to arrangements and procedures for oversight at member state level could also be welcome.
However that implies a limited role for the new body, which could evolve to something grander. And it could act as a useful negotiator with the US, giving Europe greater muscle in negotiations over the extra-territorial provisions of Sarbanes-Oxley and the like.
But what the body must not become is another regulator. If that happens, it would become exactly what it is setting out to counter.
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