The audit profession is concerned about
several EC’s audit reform proposals with a clear division between
mid-tier and Big Four firms.

Key proposals include mandatory audit firm
rotation every six years, further restrictions on non-audit
services and a significant cap on audit firms providing financial
audit services to their clients, which could threaten the Big Four

Mandatory joint audits, a mid-tier favourite
in the original EC Green Paper on Audit, has been ditched but
companies who opt to choose joint auditors could have their
mandatory rotation period extended from six years to nine

Deloitte UK chief executive and senior partner
David Sproul said creating audit-only firms and introducing
mandating rotation will result in unnecessary disruption and cost
without addressing the objectives of improving audit

PwC UK head of public policy and regulatory
affairs Pauline Wallace told International Accounting
she is “struggling with this disconnect because there
isn’t any evidence at all that somehow providing non-audit services
to audit clients is going to impair the quality of your audit”.

Crowe Horwath International chief executive
Frank Arford said its “unfortunate” mandatory joint audits were
carved out of the proposals, while RSM International chief
executive Jean Stephens said she understood this proposal could be
reinstated as the horse trading continues.

Former BDO International chief executive
Jeremy Newman is sure joint audits were taken out as result of
lobbying and said he has it on good authority that one of the Big
Four firms has 60 people working on lobbying over the audit reform
across Europe.

A proposal that is universally unpopular, and
likely to be ditched due to its impracticality, is mandatory
rotation after six years. In the original Green Paper the period
was nine years and even then it was considered far too short.

“Mandatory rotation is a flawed concept that
will add cost, and not only cost, but also the less quantifiable
cost in terms of the impact on audit quality,” Wallace said.

BDO’s global chief executive Martin van Roekel
told International Accounting Bulletin that mandatory rotation
after six years will be “too challenging” while Stephens, a former
auditor, agreed it seemed “too aggressive”.

Proposals that received support included a ban
on Big-Four only clauses, more transparent tendering process and
enabling auditors to work with fewer restrictions more easily
across the continent.

The proposals are still at an early stage as
they must navigate a path through the EU’s political process and
lobbying is expected to escalate in the coming months.