The European Parliament’s legal affairs committee has adopted a final version of the European Commission’s Green Paper on audit¸ which will be passed back to the EC for final release in November.
The main recommendation in the paper is 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 the use of non-Big Four firms.
The legal committee also suggested fair access to the tendering procedure by ensuring that at least two non-Big Four firms take part in the re-tendering process.
One of the recommendations to help remove obstacles in the market was to allow the public sector¸ including the European Institutions¸ to better judge the quality of audit services provided by audit firms irrespective of size.
The committee also suggested reviewing audit committee practices within private sector companies and for the EC to carry out an impact assessment on the rotation of auditors and voluntary joint audits.
Calls on the EC to develop a pan-European liability regime for the auditing profession were also endorsed.
It was also suggested that Big Four restrictive lending clauses should be outlawed – a move that is backed by the audit profession – while Big Four takeovers of non-Big Four firms should be more heavily scrutinised by competition authorities.
Conservative party MEP Syed Kamall¸ who sat on the legal affairs committee¸ said that the agreed upon version of the paper sends the EC a clear message that there is a need to maintain flexibility in the auditing industry in Europe.
“We need to strike the right balance when reforming the auditing industry. The EC should explore all the options that are out there¸ not sign up to mandatory audit rotation or joint audits now¸” he said.
Kamall’s policy adviser told the International Accounting Bulletin the lead MEP within the legal affairs committee¸ Spanish socialist Antonio Masip Hidalgo¸ suggested that auditor rotation should be mandatory every eight years and auditors should not be allowed to carry out the majority of the non-audit services.
However¸ Masip Hidalgo’s suggestion was scrapped from the adopted document and voluntary joint audit was added.