(Reuters) - The world's top audit firms were slammed by the
European Commission on Tuesday for "over lobbying" against a planned EU
shake-up aimed at encouraging more competition.
The European
Union's executive proposed its draft law last November which could lead
to the Big Four - PwC PWC.UL, KPMG KPMG.UL, Deloitte DLTE.UL and Ernst
& Young ERNY.UL - having to separate audit and advisory services in a
bid to increase competition.
The four check the books of
nearly all blue chip companies in the world. The reform would force
clients to switch auditors after six years, a process known as rotation.
Auditors would also be barred from advising clients whose books they
already check.
The proposals have split the industry in two.
The
Big Four are campaigning hard to stop many of the core changes from
being approved by the European Parliament and EU states. Smaller
auditors are urging lawmakers to stand their ground as the prospect of a
bigger market share looms.
"The lobbying has been fierce and has
been excessive in our view," Arvind Wadhera, a senior European
Commission official, told a hearing on the reform in parliament.
It
was "worse" than what he witnessed with banks, a sector seen as a
benchmark for bending the ear of lawmakers. He invited the auditors to
"write rather than trying to dismiss all the proposals made by the
commission at all sorts of fora."
"Our resolve is even firmer," Wadhera added.
Brussels
wants to crack down on auditors after EU member states had to pour 3
trillion euros into the financial sector during the crisis.
Some 150 banks had to be rescued, but none of their audits had flagged any problems, Wadhera said.
Antonio
Masip Hidalgo, a Spanish centre left member of parliament, said: "The
Big Four have done everything they can to stand in the way of further
regulation. There is a lot of effort in trying to maintain the status
quo."
FIERCE RESISTANCE
Sajjad Karim, the British
centre-right lawmaker who is steering the reform through parliament,
said he would continue listening to everyone.
"So far, as all of
those interactions are concerned, not a single interaction has led to me
being concerned in any way as to the amount of input coming in my
direction," Karim said.
None of the Big Four were invited to
speak at Tuesday's hearing. PwC and KPMG declined comment on the
hearing. Deloitte and Ernst & Young had no immediate comment.
The
clashes echo what is happening in the United States where the audit
regulator has met fierce resistance to the possibility of auditor
rotation there too.
The Big Four spent a combined $9.4 million
last year on lobbying against regulatory changes, according to a Reuters
analysis of congressional disclosure reports.
Officials from
some of the Big Four said on condition of anonymity they have a right to
put forward their views and reject accusations of overlobbying.
"We
are simply stating our case and leaving it to others to make their
minds up. We have a strong argument and we've seen that business, the
real winners and losers in all of this, have made their feelings very
clear on proposals such as mandatory rotation," one of the officials
said.
There was support from major audit customers to row back on
some of the proposals, even though British blue-chip companies have
stayed with the same auditor for 48 years on average.
"Investors
consider that mandatory rotation could be costly and disruptive," Liz
Murrall, a director at the UK's Investment Management Association said.
Andrew
Brown, who represents smaller auditors, said if Europe did not act to
tackle market concentration then individual member states would.
The UK competition watchdog is already probing the sector.