Wednesday, May 18, 2011

European Commission Seeks New Rules, Perhaps Oversight Body for Auditors

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The European Union is coming to grips with the idea that it must have tighter controls over the auditing community within its jurisdiction, perhaps creating a Public Company Accounting Oversight Board-type agency, although they didn't go so far as to actually say that.

Instead, the European Commission Oct. 13 said an overhaul of auditing rules is necessary because of the inability of auditors to detect some of the weaknesses in accounting that contributed to the financial crisis of two years ago. “Let me be clear: the status quo is not acceptable,” European Internal Market Commissioner Michel Barnier said at a press conference. “The crisis highlighted failings in the audit sector. These need to be explored, and we need to see what improvements can be made. I believe we need to approach this discussion in a frank and open manner. No subject should be taboo.”
The hint about a European PCAOB came when the EC, which is the EU executive body, said the EU should consider setting up its own supervisory body for the auditing industry. Among the issues to be addressed in the forthcoming review, the European Commission emphasized concerns about the independence of accounting firms from the companies they audit, especially if they are also providing consultancy services. On a related issue, the EC said it will consider ways to stimulate more competition in the audit industry as a way to break the reliance on the Big Four accounting firms and establish a true single market for EU accounting firms, including establishing a single “EU passport” to facilitate doing business in all 27 EU member states. The EC discusses these issues in a consultation paper: http://ec.europa.eu/internal_market/consultations/docs/2010/audit/green_paper_audit_en.pdf 

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