Market Set to Change for Auditors
On 30 November 2011 the European Commission accepted the proposals of the EU Internal Market Commissioner, Michel Barnier, regarding new rules for auditing. If the governments of the EU states and the European Parliament agree with the directive proposal, the market is set to change for auditors. Barnier justified his approach by stating that, since 2008, confidence in year-end audits has been shaken and that this confidence must be restored. He elaborated in detail regarding the objectives of the new directive: "Conflicts of interest will be rectified, independence strengthened and prudential supervision guaranteed; at the same time the directive will seek greater diversity within the market, which is too highly concentrated – particularly at the top."
Contracts would have a fixed term of a maximum of six years and it would then be required to observe a waiting period of a minimum of four years. This rotation is intended to stimulate the market.
If two firms audit a company, the period before switching to another auditing firm can be extended to up to nine years. In contrast, a general obligation to have joint annual audits has been dropped. If the contract for an annual audit is awarded to an auditor, this auditor is not permitted to provide any services other than the audit, which should avoid a conflict of interests. The European Securities and Markets Authority (ESMA) will be entrusted with carrying out the monitoring imposed by the new provisions.
In addition, it should be simpler for auditors to offer their services throughout Europe, which will be facilitated through the introduction of the European passport for auditing firms. International auditing standards are also to be enforced.