LONDON (Reuters) - The European Union has approved some of the world's toughest rules for accountants in a bid to avoid a repeat of banks being given a clean bill of health just before taxpayers had to rescue them after the financial crisis of 2007-2009.
The 28-country bloc's European Parliament approved a law on Thursday designed to stop any listed company from using the same accountancy firm for more than 20 years, a reform the United States has shied away from as a step too far.
Lawmakers want to end what they see as cozy relationships spanning several decades between clients and the Big Four accountants - KPMG KPMG.UL, PwC PWC.UL, Deloitte DLTE.UL and EY ERNY.UL - who check the books of nearly all the top companies around the world.
The problems faced by many banks in the financial crisis led to questions in Britain and elsewhere over why the lenders' books had been signed off just before taxpayers had to step in.
"None of the Big Four raised the alarm at all," former British finance minister Nigel Lawson told reporters on the sidelines of a conference. Lawson retains an interest in the matter having been among the UK lawmakers who had successfully campaigned for a British competition probe into the accounting market, which in turn helped shape the EU law.
The law will also mean banks can no longer be allowed to insist that a company receiving a loan must hire one of the Big Four to handle its accounts. And it sets curbs on non-accounting services, such as tax advice, that can be offered to a company whose books the accountant already checks.
But Lawson and others say it will take years to loosen the Big Four's grip, given the huge investments smaller rivals like Grant Thornton and BDO would have to make in hiring extra staff to audit large, cross-border companies.
"I think it is very difficult because, not least, there is no great desire at second-tier firms to expand into this area because on the whole they are earning a decent living as it is," Lawson said.
The Big Four had heavily lobbied EU lawmakers but failed to derail the bill. PwC said it was concerned some of the changes will reduce competition and shareholder choice by taking away the ability of a company's audit committee to keep an auditor.
Yves Nicolas, head of French auditors' body CNCC, said medium-sized accountants will have to merge if they want to audit large companies and compete with the Big Four or French accountant Mazars.
"Also if you have many tenders for work then the level of fees decreases, which makes it difficult to maintain the same level of quality," Nicolas said.
Britain already requires listed companies to consider switching accountants every decade, though the changes so far among top companies have been a merry-go-round among the Big Four.
"We are already seeing changes emerge in the market, including the UK, with long-standing audit engagements being put out to tender and audit committees being more prescriptive about the kind of non-audit services they ask the auditors to provide," said Michael Izza, chief executive of ICAEW, an international accounting body.
Grant Thornton is optimistic about the EU rules.
"While many people will be upset with the changes, the new law provides ground-breaking support for protecting investors' interests and creates some of the toughest rules for the auditing profession in the world," said Ed Nusbaum, global chief executive of Grant Thornton.
The new EU law is due to be rubber-stamped by the bloc's member states without changes.
Ahead of the 2016 start for the EU rules, Britain's competition watchdog will enforce changes from later this year to require listed companies to put out their book-keeping work to tender at least every decade.
Editing by David Holmes