EU reform of audit market / Rödl & Partner supports more comprehensive reform programme

On the 30 November 2011 the European Commission presented a draft regulation to reform the audit sector for large listed companies. The initiative lead by Internal Market Commissioner Michel Barnier is intended to strengthen market confidence in the independence of audit opinions in the wake of the financial and economic crisis. The main purpose of the reform is to create a more open, vibrant market for international audit networks and firms and give listed companies more choice in the selection of their auditors.

Core elements of the reform are the obligation for large public interest entities to change auditors after six years (or nine years in case of a joint audit), stricter separation of audit and non-audit services, a ban of so-called "Big Four only" clauses in financing agreements, and the strengthening of the role of the audit committee across the EU.

However, the originally expected presentation of mandatory joint audits for all large listed companies has not been included in the draft text, which will now be discussed in parliamentary debate. Rödl & Partner advocates the mandatory appointment of a second auditor who is not one of the four current largest networks, in the form of a joint or shared audit, to be included in the final version of the regulation. “We support the initiative of the European Commission for better competition in the audit market for large listed companies, a market that today shows an unhealthy degree of concentration. Without joint audit, the most important element of the reform will be missing. The proposed measures will only be effective if fair competition and more visible independence of the auditor in this market segment can be established. To achieve this, the mandatory inclusion of a second auditor outside the organisations which currently dominate the market is absolutely essential”, explains Dr. Peter Bömelburg, Managing Partner of Rödl & Partner.

“We all agree that the structure of the audit sector in the area of large listed companies must change. It is, however, important that the interests of closely held businesses are not adversely affected by the reform. These companies are a key part of the economy in many Member States including Germany”, emphasises Managing Partner Martin Wambach. “Closely-held businesses prefer their auditors to be long-term partners with an entrepreneurial view. This inevitably includes a need for non-audit services.”

“We welcome the fact that the reform proposal of the Commission is now finally in the public domain and can be discussed. We need an open and transparent debate with the participation of all international audit organizations such as Rödl & Partner and the affected companies and the regulators”, stresses Bömelburg. “Now it is up to us to make sure the focus is on fair competition, the strengthening of the independence of the auditor, and audit quality. We will continue to further encourage the European legislator to rebuild confidence in the audit sector and continue to work towards a sensible and coherent reform package, in the interests of our clients and our profession.”