Measures such as pure audit-only firms and mandatory rotation
have been scraped in the revised draft regulation by the European
Parliaments Committee on Legal Affairs (Juri).

Juri committee rapporteur Sajjad Karim has published revised draft
audit regulation on the back of the European Commission’s November
2011 proposals but has removed the most drastic audit market
reforms such as banning certain non-audit services to audit
clients, which could have led to audit-only firms.

The EC’s original recommendation which stated “It is important to
introduce a transitional regime regarding the entry into force of
the obligation to rotate audit firms, the obligation to organise a
selection procedure for the choice of audit firm and the conversion
of audit firms into firms that only provide audit services” has
been completely scraped in Karim’s amendments.

Karim has suggested a Public Interest Entity (PIE) should be
allowed to keep its auditor for a maximum of 25 years before
mandatory re-tendering is required, which is a measure that has
been widely called for by the mid-tier to tackle the issue of
lengthy audit engagements, particularly among the Big Four, that
can last up to century.

“The maximum unbroken duration of an audit engagement to a
public-interest entity shall not exceed 25 years,” the Juri draft

The draft also recommends that every seven years a PIE must report
to regulators that it has conducted independence threat assessments
concerning both the statutory auditor and audit firm and it is
“satisfied that the statutory auditor or audit firm is likely
to be able to mitigate any threats to its independence”.

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This watered down version of the draft regulation is not a big
surprise as speculations have been growing that the Juri committee
was expected to take a more soft approach towards reforming the EU
audit market. There have also been widespread allegations of
increasing Big Four lobbying in order to scrap measures that would
significantly alter the Big Four business model.

Karim is to present the report on 17 or 18 September and the
Economic and Monetary Affairs Committee (ECON) is then expected to
give its opinion in November.

A formal agreement of a final text that will then go to EU
Parliament for debate could emerge by the end of 2012.