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September 27, 2012

Econ suggests seven year retendering

Mandatory rotation and the ‘pure audit firm’
concept have been scrapped from the draft legislation report
released by the EU parliament Economic and Monetary Affairs
Committee (Econ), however mandatory seven year tendering has been
introduced, as well as a call for more power for audit
committees.

Draft rapporteur Kay Swinburne, a UK MEP,
suggested seven year retendering might address market concentration
concerns while opposing mandatory firm rotation.

Swinburne said the European Commission’s (EC)
suggestion of seven year mandatory firm rotation was “premature”
and might prove to be unnecessary.

Instead, Swinburne suggested a retendering
process every seven years with companies having the option to keep
their existing auditor.

A mandated seven year tendering
process would provide a framework for increased scrutiny of the
audit services provided by the current auditor by the audit
committee and would remove any speculation in the market when an
audit mandate is tendered,” she stated.

Swinburne took a position against measures
such as joint audits, but called for audit committees to consider
the possibility of joint audits
in the tendering
process.

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Swindon said there should be greater scrutiny over the provision of
non-audit service to audit clients and called on audit committees
to play a more active role in reviewing the process.

She did not back the pure audit firm model suggested by the EC, but
said that audit committees should be consulted on the provision of
all non-audit services, “so they can properly reflect on who the
best provider of the service is and whether it would affect the
independence of the statutory auditor should they choose to use
them”.

The draft will now be open for amendments by Econ committee
members.

Econ was the last committee to give its views following the release
of the draft report by the Legal Affairs committee (Juri) and 
the Industry, Research and Energy committee (Itre). Both documents
are at the amendments stage before the final committee vote.

Juri is the lead committee on the audit reform, however Econ
proposals need to be considered, while there is no legal obligation
to incorporate Itre’s views.

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