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'Big Four only' audit clauses in the firing line
Chris Hamblin
Clearview Publishing
2 June 2014
Various organs of
the European Union have begun pushing their governmental club to pass
a new law to force every bank, insurance company and listed company
to look beyond the exclusive use of a 'Big Four' accountancy firm to
do its auditing. They want the law to compel firms – including
asset management firms – to rotate their auditors every few years
and avoid the use of 'Big Four only' clauses in auditing contracts. The new initiative
has been a long time in preparation; the EU has been asking
interested parties how best to improve the audit market ever since
October 2010. One of the ideas that emerged was a cap on the services
that audit firms can earn from any non-audit services they also
perform for each customer-firm. The proposals place this as 70% of
the money an audit firm earns from every 'statutory audit' or legally
required review of the accuracy of financial records. In a recent
jargon-riddled statement, which mystifyingly refers to various
proposals as 'rules' and uses the present tense to describe them in
operation, the European Commission wrote: "In order to promote
market diversity, the new rules prohibit restrictive 'Big Four only'
clauses. Incentives for joint audit and tendering, as well as the
prohibition of certain non-audit services to audited PIEs are among some of the measures that will contribute
to providing new market opportunities. Tools to monitor the
concentration of the audit market are also reinforced." Financial regulators
are notorious for their cosy
relationships with Deloitte's, KPMG, EY and PwC. The proposals, true
to EU form, seem to shy away from this side of the subject.