Large auditing firms face restrictions on offering consulting services and may be forced to share work with smaller rivals under proposals from the European Commission.
Companies that are publicly traded “shall appoint at least two statutory auditors” under the measures, which are designed to improve trust in “the veracity of the financial statement,” according to a draft version of the proposals from the European Union’s executive arm obtained by Bloomberg News.
“Many of these ideas aren’t new but we’ve never seen proposals that include all of these ideas at the same time,” Michael Izza, the chief executive of the Institute of Chartered Accountants of England and Wales, said in a telephone interview today. “They’ve been aggregated in one place and that’s where you get the big impact.”
The EU is reviewing audit rules following the collapse of Lehman Brothers Holdings Inc., which raised questions about “the context of the audit” of the bank, Michel Barnier, the EU’s financial services commissioner, told lawmakers last year. The top four accounting firms have a market share of about 90 percent in the majority of EU member states, according to the commission’s report last year.
The firms will also be prohibited from providing “services other than statutory audit services” to auditing clients, which include management advisory and risk-management services, according to the document.
“The audit sector displayed clear failings during the crisis and this is why we believe more has to be done,” Chantal Hughes, a spokeswoman for the commission in Brussels, said today.
The European Commission, the European Union’s executive arm, will propose the new rules for auditors in November.