EU proposals target radical audit revamp
“BIG FOUR” accountancy firms could be forced to scale back their audit activities in the future, if a European Commission consultation on shaking up the industry finds that the scale of individual players poses a systemic risk.
The EU’s internal markets commissioner Michel Barnier yesterday launched the wide-ranging consultation to examine whether the role of auditors can be altered to reduce the likelihood of future shocks to the financial system.
Barnier highlighted a number of areas to be explored in addition to the impact of having a number of dominant audit firms – including the independence of firms also providing non-audit services to clients, the reliability of audited financial statements, EU-level supervision and the specific audit needs of the SME market.
“The veracity of financial statements is central to confidence in the marketplace,” Barnier said yesterday, calling for a “frank and open” discussion of the issues facing the industry where “no subject should be taboo”.
But the suggestion of a possible enforced scaling-back of larger auditors’ remits left the “Big Four” reeling, with industry participants warning that size can be an important factor in improving the quality of service provided to clients.
“Modern business is complex and demands auditors to have geographic scale and access to many areas of expertise which is available in a multi disciplinary environment,” cautioned KPMG. “We believe that market interventions, such as reducing the scale of the existing firms, would be prejudicial to audit quality.”