Audit regulator warns EU over auditing plans
Radical European Union proposals to shake up auditing and corporate governance could destroy a cornerstone of the successful capital market, a regulator said on Thursday. Skip related content
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EU Internal Market Commissioner Michel Barnier wants to inject more competition into auditing, a sector dominated by just four companies.
Brussels is mulling compulsory rotation of audit partners who check a company's accounts, and making it easier for local auditors to work alongside the "Big Four" who dominate the global sector."We are likely to see some fairly challenging proposals from Europe at the outset, but they will be subject to debate," Richard Fleck, a director at the Financial Reporting Council, told an accountancy conference.
"My hope is that we don't end up with Europe taking a damaging approach to some of the good things that go on in financial reporting in a reaction to the Anglo-American model, and secondly in an attempt to advance a number of self interests including some of the more regional firms," Fleck said.
Barnier, who will be grilled by MPs about his regulation plans next Monday, also wants tougher corporate governance so that independent board directors are more questioning and all shareholders have a strong voice.
Fleck said the EU has reservations about the "comply or explain" approach commonly used in Britain whereby companies explain to investors why they are not abiding by corporate governance best practice.
"There are even proposals to replace national contract laws with European contract laws, despite decades of legal precedent in member states, to potentially destroy one of the cornerstones for the capital market's success in the UK," Fleck said.
"Where will this go? Will it happen? You have to hope national allowances come through in the end ... The status quo won't survive," Fleck added.
The FRC polices UK corporate reporting and auditing and will soon publish a paper on increasing company transparency and ensure all board members fully understand the business.
"We are very keen to see an annual report that is fair and balanced," Fleck said.
"I now expect to see that we will be moving towards seeing annual reports that really do make a thorough and coherent start to finish exploration of what the company is about," Fleck said.
(Reporting by Huw Jones; Editing by Will Waterman)
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