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EU and US vow to co-operate on audit firms regulation

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Published 13 April 2004 - Updated 20 March 2006
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After open clashes last year, EU and US regulators say they are now converging on the objectives to be set for overseeing audit firms. Auditor rotation is likely to become the future norm.

The US plans to regulate the auditing sector had raised concerns amongst European accounting firms. They objected to a proposal that would subject them to US oversight and argued that it would raise compliance costs for European auditors, eventually putting the smaller ones among them at a competitive disadvantage.

In 2003, the EU had criticised the US plan because it would impose US standards on EU firms (see

EurActiv, 13 June 2003). The issue today, the two sides now agree, is rather to strengthen the transatlantic regulatory dialogue to try to make both standards equivalent.

Since October 2003, no US accounting firm has been able to audit a publicly-traded company unless registered with the PCAOB. foreign accounting firms working for US-listed companies were scheduled to follow in April but on 9 March the PCAOB rescheduled the registration deadline to 19 July, leaving EU firms three extra months to comply with the new US rules.

 

Positions: 

Speaking on 25 March at a meeting at the European Policy Center (EPC), PCAOB chief William J McDonough said he was convinced that the EU's proposed

Eighth Company Law Directivewould "mesh quite well" with the objectives of the US organisation. However, he predicted that there would be fierce business opposition in Europe, as there had been in the US to the PCAOB, due to fears of over-regulation. His advice to the EU was to "stay the course" on regulating the audit profession.

In May 2003, Commissioner Bolkestein had strong words against the proposed US oversight measures on foreign audit firms scrutinising US-listed companies. "I do not accept the imposition of US standards on our firms and that is why the European Union strongly opposes registration of EU audit firms with the United States' Public Company Accounting Oversight Board. The EU will regulate its own businesses," he said at the time.

Today, he is adopting a more co-operative stance, saying the US and EU approaches now converge. There is still scope for clashes on the issue, he warned, but there are incentives for effective cooperation. "There has never been a better reason to work together," he said at an EPC meeting on 25 March. He cited ruling out conflicts of interests and more frequent auditor rotation as common objectives of the EU and US approaches.

Reacting to Mr. Bolkestein at the the EPC briefing, the President of the European Federation of Accountants (FEE), David Devlin, said he disagreed with the Commissioner over the need for audit rotation, arguing evidence had shown that the system does not work well enough. In a

position paperreleased after the Commission issued its proposed Eighth Company Law directive, the FEE identified four areas where it believe d progress ought to be made: oversight, audit standards, independence and liability.

 

Next steps: 
The commission said the proposal would be adopted by mid-2005 at the earliest.

 

Background: 
The Commission on 16 March issued a proposal to reform the way EU-listed firms are audited - the Eight Company Law Directive - one month after Commissioner Bolkestein had highlighted the broad lines of the plan to the European Parliament (see EurActiv 17 March 2004and , 13 February 2004).

The proposal comes as the EU's response to the corporate scandals that have recently swept Europe - with Parmalat the latest and most spectacular example. But it is also widely considered to be a reaction to the launch of an US audit regulator, the Public Company Accounting Oversight Board (PCAOB), whose sweeping powers will soon force EU audit firms to change the way they operate on the other side of the Atlantic.

 

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