Key German decision-makers last week (5 May) rejected the scope and content of a planned radical overhaul of corporate governance rules affecting auditors, due to be launched by the European Commission later this year.
In its Green Paper on audit policy – called 'Lessons from the Crisis' – the EU executive included proposals for the mandatory rotation of auditors within listed companies, and to force them to employ at least one firm of auditors.
But speaking at a debate staged by the German state of Hessen last week (4 May), key German decision-makers voiced their concerns about the proposals.
Their comments come at a critical moment in the development of policy, since the Parliament's legal affairs committee will later this month (24 May) adopt a position on the Green Paper in its legal affairs committee.
Rotating auditors will be inefficient
Despite broadly welcoming the idea of new corporate governance rules, Free Democrat MEP Wolf Klinz, who chairs the Parliament's economic and social crisis committee, said 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".
Klinz – who will be an influential voice as the Parliament considers its response to the proposals – also criticised the plans to rotate auditors. He said: "The idea of enforcing companies to tender every eight years for their work is not realistic and will not help SMEs."
Joint audits would be difficult to impose legally, Klinz added, insisting: "Companies must be left to make their own decisions and cannot be forced to do this."
Joint audits more expensive
There is no evidence that joint audits produce better quality, but plenty of proof that they are more expensive, Hansrudi Lenz, professor of accounting and auditing at the University of Würzburg, told the meeting.
He said that in France – where joint audits are a requirement – they cost 20% to 50% more than elsewhere in Europe. Meanwhile in Denmark, which abandoned mandatory joint audits in 2005, Lenz said the country subsequently saw a 25% fall in the cost of audits, without any corresponding diminution in the quality of service.
The largest German companies are sceptical of the proposals, Rolf Pohlig, chief financial officer at German utility giant RWE, told the meeting. He said: "I know that board members of the DAX companies have expressed their scepticism."
According to Pohlig, mandatory rotation of auditors was no guarantee of more efficiency. He said: "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."
A consultation on the Green Paper closed in January this year. In February, Internal Markets Commissioner Michel Barnier stressed that the Commission was still considering mandatory rotation of auditors and joint audits in a speech called 'Audit 2011: The Year of Audacity'.
A Commission official told EURACTIV that a firm proposal – "radical and ambitious" – would be issued by the end of the year.