Banks and listed companies would be required to rotate theirauditors under European Union proposals aimed at improving auditquality and boosting competition in the industry.

The plans published by the European Commission today includecurbs on large audit companies' right to offer consultancyservices, the Brussels-based regulator said in a statement on itswebsite.

“Investor confidence in audit has been shaken by the crisis,”Michel Barnier, the EU's financial services commissioner, said in astatement. “We need to restore confidence in the financialstatements of companies.”

The EU is reviewing audit rules following the collapse of LehmanBrothers Holdings Inc., which the commission said raised questionsabout the quality of company audits. The top four auditing firmshave a market share that exceeds 85 percent in the majority of EUmember states, the commission said.

“Today's proposals address the current weaknesses in the EUaudit market by eliminating conflicts of interest, ensuringindependence and robust supervision and by facilitating morediversity in what is an overly concentrated market,” Barniersaid.

Banks, insurers and listed companies would be required to rotatethe audit firm they use every six years, with a four-year gapbefore the firm could be rehired, the commission said.

The rotation period could be extended to nine years if a companyuses more than one auditor, the commission said.

Audit companies would be banned from providing consultingservices to their clients in order to avoid conflict of interest,the commission said.

Large audit firms would also be obliged to “separate auditactivities from non-audit activities,” the commission said. Thisseparation would amount to “a complete ban on the provision ofnon-audit services,” it said.

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