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April 9, 2015

Editor’s letter: Lobbying and the City (of Brussels)

There is nothing to be ashamed of lobbying. Everyone, even in our daily life, does it. It might even be one of the world’s oldest professions, as defined by the UK Public Affairs Council, an industry body.

According to that definition, lobbying in a professional capacity means attempting to influence (or advising those who wish to influence) governments or parliaments on any matter of their competence. Therefore such a human activity seems to be as old as the hills.

But if lobbying was a sport it could certainly be played by the rules or rather be gently pushed out of the limits of sportsmanship – again, nothing extraordinary that wouldn’t apply to every field of life or to every competition.

As member states brace for the implementation of the EU audit rules, one could only image how busy the last four years must have been for lobbyists and interested parties in the reform debate.

All the fuss started in 2010 when the European Commission issued its green paper Audit Policy: Lessons from the crisis. Bold proposals to re-establish investor confidence in the audit profession were issued, as many didn’t understand why collapsing financial institutions were given a clean bill of health by their auditors before the crisis struck.

Among the most controversial measures of the reform, aimed also at enhancing auditor independence, were mandatory firm rotation and restriction to non-audit services provided to audited public interest entities.

Within the profession some stakeholders welcomed the proposed audit reform -some more than others. And equally, some of them were more vocal than others while lobbying in Brussels. From the text finally passed by the European Parliament in June 2014 everyone can draw his own conclusion.

But does the lobbying stop here? Reflecting the areas where agreement couldn’t be reached by EU lawmakers, the text (definitely not a friendly read) left a large number of options that should be decided by member states before June 2016.

Some are concerned that this could erode efforts to achieve harmonisation in the EU and ultimately the single market. However, could this be an argument to discredit the unstoppable reform of the EU audit industry?

Right now, before the reform comes into force, the EU audit market can’t be more fragmented with twenty-eight different systems. Even the most diverse implementation of EU rules shouldn’t make this worse.

Another point often overlooked is that this reform was made to win back investors to the EU. Frank Curtiss, head of corporate governance at a UK long-term investor fund, said recently that the investor community is concerned about non-audit services. If they are excessive, he said, they can compromise auditor independence.

Curtiss noted that a debate should be encouraged about whether those services need to be in "a longer blacklist or a shorter whitelist or the fifty shades of grey in between".

As Curtiss rightly said, the devil is in the details. This issue of The Accountant explores those details and the twenty-eight shades of grey that the EU audit rules offer to member states.

Carlos Martin Tornerocarlos.tornero[at]uk.timetric.com

Related storyAuditors: sinners or saints?

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