EU wants to overhaul audit rules
LISTED companies may lose the right to choose their auditors under EU proposals to bolster investors' confidence in financial information in the wake of the economic crisis.
Regulators may get powers over the "appointment, remuneration and duration" of listed-companies' auditors, the European Commission said.
The aim is to ensure that auditors serve shareholders rather than their client companies, the EU agency said, as it sought views on possible measures to overhaul auditing rules in the 27-nation bloc.
"The veracity of financial statements is central to confidence in the marketplace," Michel Barnier, the EU's financial services commissioner, said in an emailed statement today.
"Auditors have an important role to play and that is why we need robust and completely independent audits."
The EU is reviewing audit rules following the collapse of Lehman Brothers Holdings, which raised questions "in the context of the audit" of the bank, Mr Barnier told lawmakers earlier this year.
The UK's Financial Reporting Council said last week it is investigating Ernst & Young LLP's reports on Lehman Brothers' compliance with UK rules governing the protection of client money.
"The crisis highlighted failings in the audit sector," Mr Barnier said yesterday. "These need to be explored and we need to see what improvements can be made. I believe it is important to approach this discussion in a frank and open manner. No subject should be taboo."
Restrictions on auditor choice may reduce "distortion within the system" caused by auditing firms acting in the interests of their clients rather than shareholders when compiling reports on a company's financial health, the commission said in a report outlining possible measures.
Caps on the proportion of total revenue auditors derive from a single client "could be envisaged" under today's plans.
The commission said it's also considering rules that would force companies to change their auditing firms after a fixed period of time.
Forcing companies to rotate their auditors would "enhance the independence of auditors" and "operate as a catalyst to introduce more dynamism and capacity into the audit market", the commission said.
The top four accounting firms have a market share of about 90pc in the majority of EU member states, according to the commission's report.
"The market appears to be too concentrated in certain segments and denies clients sufficient choice when deciding on their auditors," the commission said. (Bloomberg)