EU approves rules to shake up company book-keeping

Thu Apr 3, 2014 7:38am EDT
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By Huw Jones

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.   Continued...

The Deloitte Company logo is seen on a commercial tower at Gurgaon, on the outskirts of New Delhi August 9, 2012. REUTERS/Parivartan Sharma