The European Union could be less than a month away from a deal forcing the bloc's listed companies to change their accountant every decade, a senior EU lawmaker said on Monday (25 November).
Sajjad Karim, a British Conservative member of the European Parliament, is leading a team of lawmakers looking to bridge a gap with the bloc's member states over how often companies must switch their book-keepers.
The reform aims to make auditors more sceptical about what management at client companies tell them.
The accounting sector is dominated by the "Big Four" of PricewaterhouseCoopers, KPMG, Deloitte and EY, who have been criticised for giving banks a clean bill of health just before many had to be rescued by taxpayers in the 2007-09 financial crisis.
"Our proposal would be a powerful antidote to shake up the audit market and inject the transparency and competitiveness it requires," Karim said in a statement.
He is proposing a switch every decade, with the option of sticking with the same accountant for another 10 years under certain conditions.
An extension would be agreed if two accountancy firms are hired, that book-keeping work is put out to public tender or the company's audit committee endorses an extension.
This compares with European Parliament's initial position of a 25-year maximum period before mandatory switching, and moves lawmakers largely in line with what is wanted by many member states, who have joint say on the draft EU law.
The draft law has been bogged down for months, but Lithuania – current holder of the EU presidency – secured an unexpected breakthrough among member states to open talks with parliament.
However a member state official said that while positions on switching were close, crucial issues remained, in particular the list of advisory services an accountant would be banned from undertaking for a client whose books it checks.
Karim said a deal on which non-audit services should be restricted was being hammered out.
A battle also looms over what role, if any, the European Securities and Markets Authority, and EU regulator, should play in aiding national supervisors of accountants.
Ambassadors from member states meet on Wednesday ahead of the negotiations on Dec. 5, which Karim hoped will be fruitful.
An official from one of the Big Four accountants said mandatory switching would increase costs for EU business with unlisted banks and insurers also facing the new requirements.
The EU's executive European Commission has estimated it would cost a big company €400,000 ($541,000) to put out its audit work to public tender, and cost between 5 and 7 million for an accounting firm to tender for the work, the official said.
Mandatory switching would create a "nightmare" patchwork of rules, as some countries, like the Netherlands, already have a shorter mandatory switching period than a decade, while other countries may not allow extensions beyond the initial 10-year period, the Big Four official added.
The EU must reach a deal by April to avoid a prolonged delay as the European Parliament goes to the polls in May and a new European Commission will not be appointed until October.