EU eyes tougher regulation of audit firms

09:04, October 14, 2010      

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The European Commission on Wednesday launched a public consultation on the need to tighten regulation of audit firms after their role in the financial crisis aroused frowns.

"In the wake of the financial crisis, we need to ask the question whether the role of auditors can be enhanced to mitigate any new financial risk in the future," the European Union (EU)'s executive arm said in a statement.

"The crisis also highlighted certain weaknesses in the audit sector which need to be explored further," it added.

The broad consultation would be centered on whether audits provide the right information to all financial actors, whether there are issues around the independence of audit firms, whether there are risks linked to a concentrated market and whether supervision at a European level might be useful.

It is questionable whether auditors are truly detached and critical when examining the financial statements of a company when that same company is an existing or potential client for non audit services, the commission said.

There is also concern about the potential for systemic risk because of the strong concentration in the audit sector.

Currently, the four biggest audit firms, namely Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young, control 70 percent of the European auditing market.

"Auditors have an important role to play and that is why we need robust and completely independent audits. The crisis highlighted failings in the audit sector. These need to be explored and we need to see what improvements can be made," said EU Internal Market and Services Commissioner Michel Barnier.

Based on the results of the public consultation, the EU would weigh over the actions to take.

Source: Xinhua


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