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Comment: Potential impact of CC findings on EU audit reform

by Noel Clehane, global head of regulatory affairs at BDO International, based in Brussels at the BDO International executive office

The issuing of the preliminary findings of the UK Competition Commission on 22 February coincides with a very significant stage in the process through which the audit reform proposals of the European Commission are proceeding.

On 11 March the Economic and Monetary Affairs Committee (ECON) of the European Parliament held its vote on the Commission's proposals. This committee has sole or shared competence on some areas, but is, for the most part, an 'opinion' committee on these proposals. While there was considerable interest among the members of this committee in the findings of the independent UK authority and the rapporteur is the UK Conservative MEP Kay Swinburne, the amendments which they voted on and adopted were the same as those circulating since mid-February and the findings issued by the Competition Commission do not in the end appear to have had any notable bearing on the position adopted in the ECON committee.

The 'lead' committee on these proposals in the European Parliament is that of Legal Affairs (JURI). It will also meet in the near future to vote on its amendments having taken account of the vote in ECON and the second 'opinion' committee (ITRE) which issued its opinion in December 2012. Various dates in March had been given for the JURI meeting but it now looks like it may be deferred until April.

The rapporteur in that committee is also a UK Conservative MEP (Sajjad Karim) and in a press release since the CC findings were issued he stated that: "The measures that we adopt on audit quality are bound to affect the market. It is reassuring that the suggestions to be considered by the Competition Commission mirror many of the positive changes included in my proposal".

It's difficult to imagine that the preliminary findings from the UK CC would not shape and influence the final debate and vote in the JURI committee whose position will probably go on to be the position of the Parliament as a whole. Indeed, many of the comments and observations made in the UK findings echo those of JURI MEPs at earlier stages of the Brussels process, including those in the area of the future role of auditors, transparency around auditor appointments, shareholders' demands for information and their expectations of auditors, as well as concerns about the long tenure of statutory auditors of larger Public Interest Entities (PIEs) and the levels of concentration found in that market.

The UK body is a public body, but is fully independent and has no formal or procedural connection to the European Parliament, European Commission or the EU member states, which are the three EU parties addressing the proposed audit reforms in Brussels. However, given the extensive investigation and evidence-gathering by the well-resourced UK body, and noting the considerable interest by all of the 'Brussels parties' in the UK process up to now, it's difficult to imagine that the critical closing stages of the process in Brussels will not be influenced by the UK CC preliminary findings, notably on issues pertaining to the market structure
element of the EC proposals.

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