Published April 24, 2013
LONDON – Companies would have to change their accountant every 25 years under a tentative deal ahead of Thursday's committee vote on a European Union audit market reform, two parliamentary sources involved in the talks said on Wednesday.
If endorsed, it would mark a big dilution in the draft EU law and trigger relief among the "Big Four" accounting firms - Deloitte , Ernst & Young LLP , PwC and KPMG - who check the books of nearly all blue chip companies worldwide.
If backed by the European Parliament's legal affairs committee on Thursday, the change would still need support of full parliament and the 27 EU member states to become law.
The reform has been deadlocked for months over whether and how often companies should have to switch accountants.
Critics say there are too few accounting firms with the breadth of experience to force a switch on a frequent basis.
Supporters say mandatory switching would encourage the next tier of accountants like Grant Thornton, Mazars and BDO to investing in more staff.
The reform is being closely tracked by the United States whose audit regulator is also mulling a cap on tenure.
The original draft proposed a switch at least every six to nine years to increase competition and stop auditors being cozy with clients. Policymakers were angered that banks were given a clean bill of health by accountants just before they were rescued in the financial crisis.
"There would be no exceptions after 25 years," a parliamentary source said on condition of anonymity. "It was agreed as a last-minute compromise."
"There is a backstop agreed at 25 years," the second source said.
So far the deal has tentative backing of a majority of committee members drawn from the main centre-right parties, the Liberals and some from the left and nonaligned groups, the two parliamentary sources said.
The Socialists, the assembly's second-largest party, do not support the deal as they think 25 years is too long a tenure though that position may evolve, the sources added.
Britain's Competition Commission is also deciding on how it wants to increase competition in what it sees as Britain's "sticky" audit market where companies had the same accounting firm for many decades in some cases.
The UK already requires companies to consider a switch every 10 years or explain if no change is made, and the antitrust watchdog will say in July whether switching should become mandatory and if so, how frequently.
(Reporting by Huw Jones; editing by Matthew Lewis)