* New law aimed at making accountants challenge clients
* Shakeup to be introduced from 2016
By Huw Jones
LONDON, April 3 The European Union has approved
some of the world's toughest rules for accountants in a bid to
avoid a repeat of banks being given a clean bill of health just
before taxpayers had to rescue them after the financial crisis
The 28-country bloc's European Parliament approved a law on
Thursday designed to stop any listed company from using the same
accountantcy firm for more than 20 years, a reform the United
States has shied away from as a step too far.
Lawmakers want to end what they see as cozy relationships
spanning several decades between clients and the Big Four
accountants - KPMG, PwC, Deloitte
and EY - who check the books of nearly all the top
companies around the world.
The problems faced by many banks in the financial crisis led
to questions in Britain and elsewhere over why the lenders'
books had been signed off just before taxpayers had to step in.
"None of the Big Four raised the alarm at all," former
British finance minister Nigel Lawson told reporters on the
sidelines of a conference. Lawson retains an interest in the
matter having been among the UK lawmakers who had successfully
campaigned for a British competition probe into the accounting
market, which in turn helped shape the EU law.
The law will also mean banks can no longer be allowed to
insist that a company receiving a loan must hire one of the Big
Four to handle its accounts. And it sets curbs on non-accounting
services, such as tax advice, that can be offered to a company
whose books the accountant already checks.
But Lawson and others say it will take years to loosen the
Big Four's grip, given the huge investments smaller rivals like
Grant Thornton and BDO would have to make in hiring extra staff
to audit large, cross-border companies.
"I think it is very difficult because, not least, there is
no great desire at second-tier firms to expand into this area
because on the whole they are earning a decent living as it is,"
The Big Four had heavily lobbied EU lawmakers but failed to
derail the bill. PwC said it was concerned some of the changes
will reduce competition and shareholder choice by taking away
the ability of a company's audit committee to keep an auditor.
Yves Nicolas, head of French auditors' body CNCC, said
medium-sized accountants will have to merge if they want to
audit large companies and compete with the Big Four or French
"Also if you have many tenders for work then the level of
fees decreases, which makes it difficult to maintain the same
level of quality," Nicolas said.
Britain already requires listed companies to consider
switching accountants every decade, though the changes so far
among top companies have been a merry-go-round among the Big
"We are already seeing changes emerge in the market,
including the UK, with long-standing audit engagements being put
out to tender and audit committees being more prescriptive about
the kind of non-audit services they ask the auditors to
provide," said Michael Izza, chief executive of ICAEW, an
international accounting body.
Grant Thornton is optimistic about the EU rules.
"While many people will be upset with the changes, the new
law provides ground-breaking support for protecting investors'
interests and creates some of the toughest rules for the
auditing profession in the world," said Ed Nusbaum, global chief
executive of Grant Thornton.
The new EU law is due to be rubber-stamped by the bloc's
member states without changes.
Ahead of the 2016 start for the EU rules, Britain's
competition watchdog will enforce changes from later this year
to require listed companies to put out their book-keeping work
to tender at least every decade.
(Editing by David Holmes)