* Top lawmaker intervenes ahead of April 25 vote
* Big Four officials see compromise as a way forward
* UK competition probe could muddy waters for Britain
By Huw Jones
LONDON, April 12 Shareholders would have the
final say on who checks their company's books under a proposal
from a top European Union lawmaker seeking to end a deadlock
over shaking up auditors.
Accounting firms face sweeping changes after criticism for
giving banks a clean bill of health just months before they had
to be rescued by taxpayers in the financial crisis.
A draft EU law seeks to improve the quality of audits by
making accountants more sceptical of what clients tell them, and
by beefing up competition in a sector dominated by just four big
firms: KPMG, Deloitte, Ernst & Young and PwC.
EU states and the European Parliament have joint say on the
law which proposes that companies should be forced to switch
accountants regularly as many are kept on for decades.
Member states and lawmakers are divided over how tough the
reform should be.
Parliament's legal affairs committee votes on April 25 and
its German centre right chairman, Klaus-Heiner Lehne, has
intervened with a face-saving proposal to end the deadlock.
In his paper circulated among MEPs, a copy of which was seen
by Reuters, switching would be mandatory but the maximum period
for keeping the same accountant would stretch to 14 years, much
longer than the six to nine years proposed in the draft law.
Countries could also allow companies to keep the same
accountant for longer if there had been a public retendering of
the contract, if the company's audit committee had assessed the
audit firm's performance thoroughly, or if the company had two
As a safeguard, shareholder approval would be needed at an
annual meeting for an auditor to be kept on more than 14 years.
"The sense we are getting is that everyone thinks this
compromise will get through," an official from one of the Big
Four accounting firms said. "You will get a patchwork solution
across the EU but at least you are getting a solution that each
member state can live with."
Lehne's intervention highlights the urgent need to find a
cross-party deal for parliament to be in a position of strength
to start talks on a final text with EU states.
Lehne, who is widely respected and from parliament's biggest
party, was not immediately available for comment.
Parliamentary sources said there was support among some
parties though the Socialists wanted the proposal tightened up.
It would work in the EU's biggest countries such as France
which has a system of joint audits already in place.
In Britain big companies have begun switching accountants
because of a new requirement to change at least every decade or
explain publicly why the auditor is being kept on.
Germany also has mixed feelings on mandatory rotation and
has suggested it could be limited to banks.
"Lehne's effort is appreciated. Without a deal on Lehne's
amendment there will be no deal," said one parliamentary source.
Sources familiar with the member state negotiations said
there was a blocking minority including Britain, which opposed
mandatory rotation, meaning a compromise was inevitable.
Britain's position however, as Europe's main accounting hub,
may change once the UK Competition Commission comes out with its
own recommendations on reforming the country's audit market.
It has proposed mandatory rotation and it would be hard for
the UK government to stay opposed to mandatory switching if it
formed part of the UK antitrust watchdog's final recommendations
due by October.
EU states will look to parliament's vote this month to help
break the impasse over auditor switching.
"If there is a clear parliamentary direction of travel, it
might be enough to swing critical mass behind some of the key
issues such as if they come out with a strong position on
mandatory rotation," an EU member state official said.
Lehne is also proposing ways to boost the chances of smaller
auditors like Grant Thornton, Mazars and BDO picking up more
work from blue chip firms by allowing member states to insist on
two auditors for a company.
"In order to facilitate the development of the capacity of
smaller audit firms, member states may decide that at least one
of the auditors or audit firms appointed should not be among the
largest statutory auditors or audit firms in the concerned
member state," his paper said.