25 May 2011
On 24 May the European Parliament’s Legal Affairs Committee adopted its final report on the European Commission’s Green Paper on the future of audit.
Indicating the Parliament’s support for major reform of the audit sector in response to the financial crisis, the Committee recommended the following key points:
- Clauses in commercial contracts which restrict the choice of auditor should be outlawed
- A demand that public procurement should aim to use firms other than the Big Four and that public bodies should set a benchmark percentage for use of non Big Four firms
- In connection with tendering by public interest entities, the Commission should stipulate that fair access to the tendering procedure is provided for audit firms alongside the Big Four, including at least two other firms
- Takeovers by the Big Four must be considered in the light of impact on growth of other firms or networks
- The European Commission should establish equal competitive conditions in the audit market, not least by making access to the market easier and removing obstacles for more firms. To help this, it should also explore ways that will allow the public sector, including the European Institutions, to better judge the quality of audit services provided by audit firms irrespective of their size
- The Commission should also review audit committee practices within private sector companies with a particular view on aspects of administrative burdens associated with a formal tendering process
- The European Commission should carry out an impact assessment on the rotation of auditors and the impact of voluntary joint audits
- Reinforced contingency plans should be designed to reduce the disruption that would be caused by an audit firm deemed “too big to fail” leaving the market
- Calls on the Commission to develop a pan-European liability regime for the auditing profession.
Following the vote of the European Parliament’s Legal Affairs Committee, BDO CEO Jeremy Newman said:
“The Committee has made many progressive recommendations on the reform of audit services. The demand for a more wide spread procurement process in the public sector along with a review of the administrative burdens of tendering in the private sector are crucial moves towards a more balanced and effective audit profession. Releasing more information about the quality of audit services at all firms, including the Big Four, will also help public sector entities, and others, recognise the quality of the work of BDO and others.
“We are also delighted that the Parliament has called for a halt on the Big Four using their dominant position to takeover smaller firms and for a ban on commercial contracts which contain restrictive Big Four only clauses that everyone has recognised exist and which distort the market.
“The European Parliament has also rightly recognised that there are audit firms which are too big to fail and that contingency plans should be enhanced in case one should disappear from the market. Their call to remove the barriers of entry is good for the profession and the global economy.
“BDO will continue to offer our support to the Commission over the next few months as it draws up its plans for legislation”.
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