Germans reject Commission's audit proposals

Broadly welcoming the idea of corporate governance rules, German MEP Wolf Klinz (Alliance of Liberals and Democrats for Europe), chairman of the Parliament's economic and social crisis committee, said: "Without effective corporate governance rules the single market will not be complete, and Europe will not be able to compete globally."

But he added: "Corporate governance has to involve not just listed companies – as the Commission suggests – because large companies such as Bosch and Miele are not listed but they too need to be covered by corporate governance rules."

Claiming that the idea of enforcing companies to tender every eight years is not realistic and will not help the SMEs, Klinz added: "We should also not be saying auditors should not be carrying out non-audit services since these can be necessary. There should clearly not be conflicts of interest and the auditors and supervisory boards should ensure that that does not happen."

On joint audits, Klinz said: "These are already an obligation in some countries, such as Barnier's native France – he thinks that this could be the right thing to do in order to increase competition, but the auditors themselves are opposed to it. I think that it will be difficult to impose it legally and the companies must be left to make their own decisions. They cannot be forced to do this."

"There are clearly no empirical studies tracking what the effects of the proposals would be, because they are just proposals at the moment," said Hansrudi Lenz, professor of accounting and auditing at the University of Würzburg.

However, he said lessons could be drawn from those countries where joint auditing existed or had been used. He explained: "We have studies for joint audits and we can see what will happen as a result of such a rule: the market in France is less concentrated than it is in other countries for example, but audits there are also 20%-50% more expensive than elsewhere in Europe."

"Meanwhile in Denmark, which gave up joint audits in 2005, afterwards they noticed that costs fell by 25% without the quality of the service suffering. You cannot say that quality is a key factor affected by having joint audits," Lenz concluded.

Rolf Pohlig, chief financial officer on the board of German utility giant RWE, said: "There have been no attempts to talk to us [about the proposals by the Commission] but we did express an opinion [in the consultation]. I know that board members of the DAX companies have expressed their scepticism."

"Mandatory rotation is no guarantee for creating more efficiency because a new auditor needs more time to understand the company, and it is underestimated how tough it is to audit an international company with the hundreds of balance sheets that need to be considered, and this is a difficult exercise. This means that the proposals may result in a great deal of inefficiency and miss the key point," he said.

"We support any way that enhances or ensures the independence of external auditors vis-a-vis their management of listed companies, and that discloses and identifies the conflicts of interest with their listed clients," according to Giullaume Prache, secretary-general of Euroshareholders, the umbrella federation of European shareholder associations.

He added: "Therefore we do support the rotation proposal. We are also in favour of the joint audit provided that the cost remains reasonable because ant the end of the day the costs are picked up by shareholders."

"The Association of Chartered Certified Accountants (ACCA) does not believe that the mandatory limit on an audit term is necessary or desirable," according to John Davies, head of technical issues at ACCA.

He said: "Legal requirements for companies to change auditors on a regular basis would amount to a heavy cost burden for them that would be multiplied for group companies with numerous subsidiaries. Research has also shown that there is a cost associated with the amount of time that a new auditor has to spend to become acquainted with the business and procedures of the new client. Instead, we believe that the audit committee's role should be strengthened and that it should be entitled to review and determine whether an auditor’s length of service."

On non-audit services, Davies said: "Similarly, ACCA does not believe that there should be a general ban on the provision of non-audit services, but instead favours requiring the audit committee to review critically whether providing additional services would be likely to affect the auditor's independence. We do, however, acknowledge that the provision of internal audit services presents a particular problem for auditor independence and there may need to be legal measures in that area."