LONDON, Sept 6 (Reuters) - Core elements of a proposed European Union shake up of rules governing company auditors should be ditched, an influential member of the bloc’s parliament suggested, in a move that is likely to delight the “Big Four” auditors and Britain.
The EU’s executive, the European Commission, authored the draft law to inject more competition into a market where Deloitte, KPMG, PricewaterhouseCoopers and Ernst & Young check the books of most top companies in the world.
It proposed requiring the EU’s 8,000 listed companies to switch auditor every six years and introduce caps on market share that would force the Big Four to split up into separate “pure audit” and advisory companies in some EU states.
Sajjad Karim, the British centre-right lawmaker who is steering the reform through the parliament, said in his report published on the assembly’s website on Thursday that a company should be allowed to keep the same auditor for up to 25 years.
Market share caps that would trigger splitting up the big auditors should be scrapped outright, he said.
He proposes that auditors should be banned from offering a much narrower range of services to a client being audited so that, for example, tax consulting would be allowed.
Karim wants to scrap the proposal for the European Securities and Markets Authority (ESMA) to develop a “Quality Certificate” for auditors so that companies have fewer worries about using less known auditors.
He will present his report to parliament’s legal affairs committee on Sept. 18 and is likely to face stiff opposition from Liberals and socialists.
The European Parliament and EU countries have the final say and changes are expected as the approval process continues.
Some suspect Karim has taken an extreme stance to open the door to a final deal that would probably still be a dilution compared with the original text.
The reform has pitched smaller audit firms like Grant Thornton, Mazars, RSM and BDO International against the Big Four, who have campaigned hard to water down the measure.
The Big Four question why smaller firms should be given a regulatory leg-up to build up market share. Smaller auditors say it will not be worth investing in expanding networks unless there is a realistic prospect of more work for them.
“The draft does not address investor concerns in non audit services, long auditor tenure and the market structure,” said Nick Jeffrey, a director at Grant Thornton.
Separately, the EU is also waiting to see what changes, if any, Britain’s Competition Commission will make in its probe of the UK audit market where the Big Four dominate.
The UK anti-trust watchdog will publish preliminary findings in November.
Britain is sceptical about the EU measure, believing market structure should be left to anti-trust bodies and that mandatory rotation of auditors is not the answer to boosting competition. It is also leery of giving EU regulator ESMA oversight powers.