* EU states, parliament positions edge closer
* Breakthrough after two-year stalemate
* Battle over who supervises auditors to come
* Lengthy rotation period now likely
By Huw Jones
LONDON, Oct 4 The European Union moved closer on Friday to forcing companies to change accountants and avoid close ties that could lower the quality of book-keeping, sources with knowledge of the matter said.
After two years member states reached an agreement at a meeting on Friday which enables them to open talks with the European Parliament and thrash out the detail of a final law.
The "Big Four" accountants, PwC, KPMG, Deloitte and EY, dominate the sector and came under scrutiny after giving banks a clean bill of health just before they were rescued by taxpayers in the 2008 financial crisis.
Some companies have kept the same accountants for decades.
"The ambassadors today gave a mandate to the EU presidency by qualified majority to start negotiations with the European Parliament," an EU diplomat with knowledge of the meeting said.
The member states backed a deal under which banks and other systemically important companies could keep the same auditor for up to 15 years. If the bank has two accountants, known as joint audits, switching could be deferred for another five years.
All other types of companies could keep their accountant for 20 years, the diplomat said on condition of anonymity.
"Twenty years is quite a long time and the way the transitional arrangements are done, no company would have to change auditor until nine years after the law is published," a second source said.
Parliament has backed a maximum period of 25 years for sticking with the same accountant.
"Member states and parliament are not a million miles away from a deal now," a third source said.
Some countries, including Britain, opposed mandatory rotation but appear to have been out-voted.
Friday's meeting also backed a cap on how much fees an accountant can earn from advisory services to customers whose books they check.
The cap was set at 70 percent of the audit fees. Parliament's proposal has no cap but some officials expect a cap in the final law.
The members also rejected a push by France and parliament to make the Paris-based European Securities and Markets Authority (ESMA) the main regulator for auditors.
After opposition from Britain and others, the ambassadors agreed that ESMA would have an advisory role only to a new pan-EU committee made up of national regulators.
The final law is now likely to mark a big dilution to the rotation every 6-9 years the EU's executive European Commission had proposed, making it more palatable to the Big Four.
"Bring it on," an official from one of them said.
Such a lengthy rotation period would offer useful predictability and would make it easier to arrange advisory services, the official said. It would also make it more worthwhile to take part in tenders for audits knowing the business cannot stay with the incumbent.
Reform is already underway in Britain where the Competition Commission is due to publish its final recommendations for changing audit market practices, perhaps next week.
Having opposed mandatory rotation, the watchdog has proposed instead that companies must put out their audit work to tender every five years though this could be watered down in the final recommendations. Britain would have to apply an EU law on compulsory switching of accountants.
Rotation seen so far at banks has been between the Big Four, rather than giving mid-ranking rivals like Grant Thornton or BDO an entry.