Various organs of the European Union have begun pushing their governmental club to pass a new law to force every bank, insurance company and listed company to look beyond the exclusive use of a ‘Big Four’ accountancy firm to do its auditing.

Various organs of the European Union have begun pushing their governmental club to pass a new law to force every bank, insurance company and listed company to look beyond the exclusive use of a ‘Big Four’ accountancy firm to do its auditing. They want the law to compel firms – including asset management firms – to rotate their auditors every few years and avoid the use of ‘Big Four only’ clauses in auditing contracts.

The new initiative has been a long time in preparation; the EU has been asking interested parties how best to improve the audit market ever since October 2010. One of the ideas that emerged was a cap on the services that audit firms can earn from any non- audit services they also perform for each customer-firm. The proposals place this as 70% of the money an audit firm earns from every ‘statutory audit’ or legally required review of the accuracy of financial records.

In a recent jargon-riddled statement, which mystifyingly refers to various proposals as ‘rules’ and uses the present tense to de- scribe them in operation, the European Commission wrote: “In order to promote market diversity, the new rules prohibit restrictive ‘Big Four only’ clauses. Incentives for joint audit and tendering, as well as the prohibition of certain non-audit services to audited PIEs [i.e. relevant firms] are among some of the measures that will contribute to providing new market opportunities. Tools to monitor the concentration of the audit market are also reinforced.”

Financial regulators are notorious for their cosy relationships with Deloitte’s, KPMG, EY and PwC. The proposals, true to EU  form, seem to shy away from this side of the subject.