The EU's Legal Affairs Committee has today endorsed a draft agreement containing a set of agreed measures to reform weaknesses in the audit market - including the dominance of the large four firms and weak audit tendering practices.
The agreement between the European Parliament and EU Council, followed a trilogue process which broke down towards the end of last year after MEPs could not agree a position for the purpose of moving the process forward.
Legal affairs spokesperson Sajjad Karim, who led the process since its inception, said reform has been long overdue.
'The proposals that were voted through today are unprecedented. This draft piece of legislation will have positive ramifications, not just for the audit market, but for the financial sector as a whole. We are rebuilding confidence one step at a time,' said Karim.
The measures will now be put before 751 MEPs for their consideration at a plenary session in in Strasbourg, between 14 and 17 April.
If the measures find their way into a directive unchanged, it would mean that auditors in the EU would be required to publish audit reports according to international auditing standards. And there would be more detailed reporting required from auditors of public-interest entities (PIEs) - such as banks, insurance companies and listed companies - as they would have to provide shareholders and investors with a detailed understanding of what the auditor did and an overall assurance of the accuracy of the company's accounts.
The proposals also include a prohibition on Big Four-only contractual clauses, and PIEs would be obliged to issue a call for tenders when selecting a new auditor. MEPs also agreed on a mandatory rotation rule after a maximum 10 years, which may be increased to 10 additional years if new tenders are carried out, and by up to 14 additional years in cases of joint audits.
In addition, EU audit firms will be generally prohibited from providing non-audit services to their clients, including tax advisory services which directly affect the company's financial statements.
