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Big four face rebrand in EC audit regs

Wednesday 30 November 2011 - by Andrew Hickley

 Audit firms will be forced to rename and rebrand their consultancy businesses under European Commission proposals to overhaul the sector, while mandatory joint audits have not been ruled out.

Measures put forward on Wednesday will require firms to divide their 'pure' auditing and consultancy services into separate legal entities, the commission's head of the corporate governance and social responsibility unit, Claire Bury, told reporters on Wednesday.

Bury said: "The requirements go quite a long way in that the same the audit firm and the consulting firm cannot be part of the same network.

"So they can't be connected, they can't have the same ownership structures, and there is also a question around name...there will have to be changing of names - I suppose we will have branding issues at the end of the day."

KPMG, Deloitte, PwC and Ernst & Young will be affected by the changes, which apply to all audit firms that generate more than one third of annual audit revenues from large public-interest entities and belong to a network whose members have combined annual audit revenues which exceed €1.5bn within the European Union.

The move is aimed to "open up" the audit market to smaller players, she said, with measures to help mid-tier auditing firms proving "very difficult" to work without splitting consultancy and auditing work.


It is also hoped the change will improve professional scepticism and the independence of audit work, she said.

Bury also refused to rule out mandatory joint audits being introduced despite the provision not being included in proposals, which were put forward on Wednesday.

The commission assesses that "the benefits [of a joint audit] would outweigh the costs", though there is still industry debate about what the actual benefits of requiring a joint audit would be, she said.

The EC will conduct further analysis of member states where joint audits are required.

"I think we hope this [the question of joints audits] will be very much a debate that continues whilst this directive is being negotiated [with the European Parliament and European Council]," Bury said.

"I would expect that it would be one of the issues that arises during the negotiation, and if it is not dealt with here we would need to consider in the future if it should be covered by a review."

Commission spokeswoman Chantal Hughes added that the joint auditing provision, which was included in leaked drafts before being removed in the finalised proposals, had been removed because firms believed "a more gradual approach" should be taken to reforming the audit markets.

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Email: andrew.hickley@gfsnews.com


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