Wide-ranging changes suggested to the structure of the statutory audit market and the business model of the Big Four
The European Commission published its proposals for reform of the audit market on 30 November 2011. These proposals, if enacted in their current form, would entail major changes to the business models of the Big Four auditors, to the work of the audit committees of large listed and regulated companies, and to the regulation of the audit market in the EU. To implement its proposals, the Commission has put forward a draft Directive to amend Directive 2006/43/EC (the Statutory Audit Directive) and a new Regulation on specific requirements for the statutory audit of public-interest entities. The Commission’s press release is here and its useful FAQs are here.
The impetus behind the proposals is the perceived failure of auditors to identify problems in their audits of those financial institutions that had to be rescued by government bail-out in the early stages of the financial crisis. In the words of the Commission’s proposed Regulation:
“Given that many banks revealed huge losses from 2007 to 2009 on the positions they had held both on and off balance sheet, it is difficult for many citizens and investors to understand how auditors could give clean audit reports to their clients (in particular banks) for those periods.”
The Commission’s proposals
