Commission proposes new measures to strengthen and streamline the audit market

The European Commission proposal contains a series of measures aimed to ensure the independence of auditors of public-interest entities, such as banks, insurance companies or large listed companies. They are focused on strengthening audit market which was seriously affected after the publication of 'clean' reports despite sustained deficiencies in the accounts of certain companies.

The proposal for the reform on public-interest entities audits and measures to enhance the single market for statutory audits put forward by the Commission, includes the creation of a Single Market for statutory audit services that will enable auditors to practice in all Europe once they have been authorized to practice in a Member State. It also includes proposals to increase coordination in the audit market and to help to diversify a market which is currently largely dominated by the Big Four audit firms.

As highlighted by Commissioner for Internal Market and Services, Michel Barnier, this proposal seeks to restore investor confidence in relation to the financial statements of audited companies by alleviating the current shortcomings of the audit market in the European Union.

The proposed measures include mandatory rotation of audit firms that will force companies to change auditors after a maximum period of six years with a cooling period of four years, with some exceptions. It also provides for a mandatory bidding process for public-interest entities auditing, as well as a European supervision of the audit sector coordinated under the framework of the European Markets and Securities Authority (ESMA). Also, under this proposal, audit firms would not be allowed to provide other services to the clients they audit. It also includes measures to facilitate the entry of small audit firms by reducing administrative burdens.

This set of measures proposed by the Commission follow the results of a public consultation launched in October 2010 in order to gather the views of interested parties in audit markets.