* Lawmakers call for two auditors to check books
* Responding to attempts to water down reform
By Huw Jones
LONDON, Sept 18 European Union lawmakers
proposed on Tuesday that companies should have two auditors to
check their books, beefing up proposals to boost competition and
standards in the audit market.
The idea represents a significant addition to a draft EU law
designed to improve the performance of auditors blamed for
giving banks a clean bill of health just before they were
rescued by taxpayers in the 2007-09 credit crunch.
The legislation is also intended to end the dominance of the
so-called "Big Four" -- KPMG, PricewaterhouseCoopers, Ernst &
Young, and Deloitte -- which audit most bluechip firms around
But some of the smaller auditors in line for extra business
doubt the plan will be supported by enough member states and
believe a likelier outcome is a system of shared audits where
the junior partner checks the books of a subsidiary.
Lawmakers from the assembly's two biggest parties, the
centre right and socialists, said on Tuesday they backed joint
audits for listed companies, meaning smaller auditors like Grant
Thornton, BDO, Mazars or RSM would team up with a Big Four
company to sign off accounts.
Antonio Masip Hidalgo, a Spanish centre-left member told
parliament's legal affairs committee he would bring forward
amendments to make the law "more reformist" by including joint
Angelika Niebler, a German centre right member, backed his
call, saying that in a market dominated by the Big Four, they
must be "more courageous" to guarantee audit quality.
"I like this idea of joint auditing," Niebler added.
The two parties have more than enough votes to push through
amendments but the final text needs the agreement of member
states as well.
The lawmakers were responding to an attempt by the law's
sponsor in parliament, Britsh Conservative Sajjad Karim, to
water down the measure.
France has joint audits for top companies which bumps up
auditing costs by 5 percent or more, according to industry
estimates. Audits for a blue chip company can cost several
Smaller auditors argue that EU or UK regulatory intervention
would improve the likelihood of more work and hence justify
investment in more accountants.
Nick Jeffrey, a director at Grant Thornton, said the way
companies hire auditors needs to change, which could create
incentives to use more auditors.
But big auditors say joint or shared audits are difficult in
"Joint or shared audits can create problems such as diluting
accountability. Some companies are against it because it means
more expense, disruption and possible squabbles among the
auditors," David Cruickshank, chairman of Deloitte UK, told
Smaller auditors say joint or shared audits would help them
build up trust at blue chip clients which have hired the same
Big Four auditor for decades.
The centre left and centre right blocs suggested they would
also reject Karim's attempt to lengthen to 25 years from six the
maximum period a company can use the same auditor.
Karim said he proposed such a long period because issues of
unfair competition should be handled by competition authorities
and not lawmakers.
Big Four officials say the anticipated rules will simply
accelerate changes already underway as companies want to display
good corporate governance by retendering more often.
"The market is already moving. The old state of keeping an
auditor for 50 years is gone. Now it's all about how far and how
soon to move," a senior Big Four official said.
Shorter tenures would push up fees due to less time to
recover tender costs, and the top end of the market will not be
lucrative enough for smaller auditors to expand, he said.
Business may end up being redistributed among the Big Four.