EC takes on Big Four auditing firms

The European commission has adopted proposals to break up the so-called oligopoly of the Big Four auditors days after they mounted a similar pincer movement on the Big Three (American) credit rating agencies. The EC plans, agreed on Wednesday, envisage the forcible separation of the Big Four's audit services from their consultancy work – splitting up KPMG, Deloitte, Ernst & Young and PwC into two. The EU insists that this is to avoid conflicts of interest, but the industry thinks this is going too far. In the latest of a series of proposed financial regulation changes, Michel Barnier, EU internal market commissioner, is proposing that auditors will be forced to rotate after a maximum of six years with any particular company – and will then have to wait ("cool off") for four years before the same client can re-engage them. The rotation deadline can be extended to nine years. Barnier was forced at the last minute by liberal fellow commissioners to soften his attack on the rating agencies and again he has given way by dropping proposals for mandatory joint audits between big firms and some of the medium-sized accountants. The rotation rules are said to supplant this measure. Roger Barker, head of corporate governance at the Institute of Directors, criticised Barnier's move. "These are issues that should be addressed through national corporate governance codes, not European legislation. Such Europe-wide regulation is a blow to Britain's corporate governance framework based on 'comply or explain'." Barker also warned that the proposals, if implemented, would push up auditing costs.