EU Said to Reconsider Multiple-Auditor Plans Amid Cost Concerns

The European Commission may abandon plans to require auditing companies to share work with smaller rivals because of concerns over the costs of implementing the measure, according to a person familiar with the matter.

Those measures, designed to increase competition, may be shelved because they would cost companies and their auditors too much to put in place, said the person who couldn’t be identified because discussions on the rules are private. The commission is still likely to propose in its draft law that businesses should rotate the auditors they use, said the person.

The EU is reviewing audit rules following the collapse of Lehman Brothers Holdings Inc. (LEHMQ), which raised questions about “the context of the audit” of the bank, Michel Barnier, the EU’s financial services commissioner, told lawmakers last year. The top four accounting firms have a market share of about 90 percent in the majority of EU member states, according to the commission’s report last year.

“There are several challenges linked to mandatory joint audit” of a firm by more than one company, Michael Izza, the chief executive officer of the Institute of Chartered Accountants in England and Wales, said in an e-mail. “Increased cost levels, the possibility of issues ‘falling between the cracks’ and the difficulty of dealing with potentially diverging auditor views are some examples.”

The proposals on joint audits would have forced publicly traded companies to “appoint at least two statutory auditors,” according to a draft version of the proposals from the European Union’s executive arm obtained by Bloomberg News in September.

Consultancy Services

The commission’s draft law is also likely to include curbs on large auditing firms’ right to offer consultancy services, although the final form of these restrictions has yet to be decided, the person said.

“Important questions and doubts have been raised on the credibility and reliability of audited financial statements,” the commission said in a statement on its website on Nov. 18. The proposals “will address the weaknesses identified, by ensuring auditors’ independence, robust supervision and by facilitating the creation of more capacity at the top end of the market.”

Chantal Hughes, a spokeswoman for the commission in Brussels, declined to comment on possible changes to the commission’s proposals.

The commission, the 27-nation European Union’s executive arm, is aiming to propose the new rules for auditors on Nov. 30, the regulator said in its statement.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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