Following agreement in Brussels on the EU audit directive, FRC CEO Stephen Haddrill said:
“After four years of discussion and negotiation the EU is a hairsbreadth away from finalising major changes to the regulation of the larger audit firms.
The final outcome deals with the longstanding problem of companies holding on to their auditors for fifty years on average, calling into question auditor independence. The Commission originally proposed that the audit had to change hands every six years. This was quickly shown to be unworkable.
In response, the FRC developed and implemented its own plan introducing retendering of the audit every 10 years for FTSE 350 companies. We felt a company had to be able to show to its investors that it had the best available auditor for its business. How could it do so if it did not test the market? But equally how could it do so if it excluded the incumbent, especially when the choice is low? The UK’s Competition Commission has been persuaded by the merits of our approach.
The EU has now put this plan at the heart of its directive. In future, companies will be able to retender at 10 years and then must change the auditor at 20. This is a good compromise, made possible by the UK developing a plan, showing it was practical and thereby giving confidence to MEPs and policymakers. Other parts of the directive similarly borrow from experience in other Member States, including France and Germany. Europe is at its best when it takes the best of the experience of its Member States rather than when it adopts centrally designed dictats.
Commissioner Barnier is to be congratulated in his achievement, most of all for adopting in the final stages the best practice of Member States.”
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