Rose Orlik of London-based Accountancy Age, reports today that “EU to propose audit-only firms and mandatory rotation.” More than a rumor, her report is an authorized leak, designed to test the waters.
Orlik also reports on the possibility of opposition to this proposed plan. Large auditing firms are multi-billion dollar businesses, with substantial resources. Look for them to work towards a compromise that permits business as usual.
You should read the entire article. Excerpted here is the introduction.
NEW EUROPEAN REGULATION looks set to turn auditing upside down, potentially forcing the biggest firms to choose between audit and non-audit services and ushering in mandatory rotation.
A draft of the European Commission’s green paper on audit seen by Accountancy Age indicates a tough line is being pursued by internal markets commissioner Michel Barnier.
At its most radical, the paper could force firms to specialise in either audit or non-audit services by outlawing the provision of consultancy and advisory services even to non-audit clients.
In the draft’s current form, the embargo covers tax advisory and consulting services, actuary, risk management, legal and valuation services, book-keeping and preparing accounting records, among others.
This measure is likely to meet with the greatest objection, as it would threaten the business model upon which the vast majority of firms operate.
Mandatory firm rotation would boost the quality of audit, the paper suggests, shattering the “perverse pressure” on partners not to lose long-standing clients.
The rest of the article is continued at: http://www.accountancyage.com/aa/news/2111953/eu-paper-proposes-audit-firms-mandatory-rotation.
Does this proposal have a snowball’s chance? When politics gets involved, anything goes. However, there are many big money interests here. Corporate interests in Europe have been effective in getting watered down or permissive accounting rules in IFRS. My guess is that when the big auditing firms bring their corporate cronies into the fight, Barnier will need to table this proposal.
Debit and credit – – David Albrecht