Audit firms could be banned from offering consultancy services to companies whose books they also check, the European Union's financial services chief has said.
EU Internal Market Commissioner Michel Barnier sketched out his plans for reforming a sector whose independence in the run-up to the financial crisis was questioned by policymakers.
Auditors gave banks clean bills of health, but the crisis showed them holding too little capital and taking too many risks to survive without taxpayer money when the financial system went into near meltdown in late 2008.
'Regarding auditing, we have already identified certain weak spots,' Barnier said in a speech to a Federation of European Accountants conference in Brussels.
Barnier launched a public consultation on possible reform last November and said the replies showed a widespread lack of confidence in auditor independence that could damage investment in companies.
'There is a risk of a vicious circle which I want to reverse,' Barnier said.
He signalled he still wanted to pursue some of the more controversial plans aired in last year's consultation.
The sector is dominated by the 'Big Four' - KPMG, Ernst & Young, Deloitte and PricewaterhouseCoopers - who check the books of 80 percent of Europe's listed companies.
Barnier said he would publish a draft law in November and is minded to include the following elements:
- That auditors should face curbs and perhaps even a ban on offering consultancy services to the same companies they audit. There could even be a requirement for audit-only firms
- Mandatory ‘rotation’ of auditors every few years to spur competition and end the situation where companies use the same auditor for decades
- Making it easier for smaller auditors to work alongside the Big Four to gain experience and become stronger competitors to them over time
- Possibly mandatory competitive tendering for auditing contracts
- A ban on clauses or covenants in loans to a company that insist on a Big Four auditor being selected
- A ‘European passport’ for auditors with pan-EU supervision so auditors can compete more easily across the EU
- Requiring auditors to discuss with regulators concerns they have about companies
He said he was consulting with EU states on introducing international standards on auditing in the EU to harmonise rules.
EU states and the European Parliament will have the final say on Barnier's draft law, but lawmakers have already called for reform of an industry they believe became too close to the banks.