Politics

The post of auditor filled by rotation

After two years of talks, the negotiators of the European Parliament, the European Commission and the Lithuanian presidency have agreed on an obligatory external system of rotation and a limitation on consultancy activity for company auditors. Stock-market listed banks and companies will, in future, replace their auditors after a maximum of 24 years, with the intent that the changeover will soon be required every ten years. The term may be extended to 14 years one time only provided the post is obtained by bid and the task is shared by at least two companies said Michel Barnier on December 17. The four major accounts auditors KPMG, PricewaterhouseCoopers (PwC), Ernst & Young e Deloitte & Touche combined occupy a market share of Member States in excess of 85 percent. Dax-listed concerns mainly resort to PwC and KPMG. 24 of the Dax 30 companies will be obliged by the new rules to seek out a new auditor within six years. The principle of rotation must guarantee that controlled and controllers don’t get too close, with the controllers keeping their relationship on a basis of healthy professional scepticism. An auditor who certifies a company’s year-end accounts may not provide consultancy for that company on, for example, fiscal matters. According to the Commissioner for the internal market, despite the measures being less far-reaching than those proposed by the Commission, they are a clear move towards a greater independence of the controllers. Barnier was initially adamant on the issue of joint audits and a shorter period between required rotation. To save companies from a frantic mass quest for auditors when the directive comes into effect, companies have been given from six to nine years depending on whether their auditor has been on board for over 20 years or between 10 and 20 years.