Europe: audit firm control structures - Commission consultation

Towards the end of last year the European Commission launched a consultation exploring control structures in audit firms and their consequences on the audit market. The Commission has today published a summary of responses as well as those individual responses authorised for publication. In the accompanying press release the following overview of the responses is provided:

90% of respondents believe that the Commission should strive to reduce all potential barriers to the entry, growth and survival of audit firms in the international audit market. However, most of the respondents consider that lack of access to external financial capital is not the most important barrier preventing emergence of new players. It would not, therefore, be sufficient simply to change the current rules on the control of audit firms; a comprehensive analysis on a greater number of priorities would be needed. Nevertheless, some respondents do believe that allowing external investment in audit firms can help. For others, however, the risks linked to the external investor model exceed any potential benefits.

Contrary to what has been widely claimed, stakeholders consider that the current rules are not indispensable in order to retain human capital. However, they are important to protect independence of auditors. If these rules were changed, additional safeguards on independence of auditors would therefore be needed.

Respondents identify other barriers to increasing the number of audit firms operating on the international market. Stakeholders are unhappy about the lack of harmonisation of regulatory requirements, in particular on independence rules for auditors and professional qualifications requirements. The impossibility of providing cross-border services without multiple registration, as well as lack of harmonisation of liability limitations for auditors, are also important barriers.

Some respondents would favour introducing governance rules for audit firms, as well as measures to address the lack of recognition of the actual audit capabilities of firms other than the four largest networks. More frequent and transparent tender procedures, and the involvement of companies' audit committees and of shareholders in the tendering process, would be helpful in this respect.

Respondents underline the need for action at the EU level, but any action should also take into account the global dimension of the issues.

See here for further information about the Commission's work in this area.