Key audit reforms pass final hurdle

03-Apr-2014 @ 16:0

Sajjad Karim Sajjad Karim

Anthea McIntyre Anthea McIntyre

Anthea McIntyre Anthea McIntyre

Conservative MEP Sajjad Karim today spoke of hissatisfaction after key legislation on audit reform, which he is piloting,received its final seal of approval from the European Parliament sitting inBrussels.

The new legal framework established by the Karim reportwill open up the EU audit services market beyond the dominant "BigFour" firms and remedy auditing weaknesses. It also aims to improve auditquality and transparency and prevent conflicts of interest.

It was hammered out during many months ofsometimes-difficult negotiation between Mr Karim and representatives of the EUCouncil and Commission.

Mr Karim, MEP for the North West and spokesman on legalaffairs, said: "Before I took onthis report, there were many people saying that a deal could not be reached atall due to the many differences of opinion held in Parliament, amongst theCouncil and across the wider business community.

"When pieces of EU legislation which seeksignificant reform, there will always be some difficulty. However, I believesome delicately-judged negotiation produced a report which injects confidence,transparency and competition into the audit market."

But he directed severe criticism at UKIP and Labour MEPs,who tried even at the last minute in today's plenary vote to scupper theimportant legislation.

He said: "Labour stuck dogmatically to theirpreference for heavy and unwarrantedintervention, which would have been very damaging to the British companies andtheir auditors. They blindly kept this in the face of a pragmatic and highly-workablesolution which we had achieved."

"This compromise addresses the shortcomings in thecurrent audit sector and will provide investors with the information that theyneed. It remedies auditing weaknesses revealed by the financial crisis.

"I believe it has positive ramifications for thefinancial sector as a whole. We are rebuilding confidence one step at atime."

The report requires auditors in the EU to publish auditreports according to international auditing standards. For auditors ofpublic-interest entities (PIEs), such as banks, insurance companies and listedcompanies, the agreed text will improve reporting, giving investors andshareholders the key information they need to assess companies. Rather thanticking boxes, the value of auditing will be better reflected and confidence increasedin financial statements as a direct consequence of what we have achieved.

Mr Karim said: "We also hope to open up competitionin the area of non-audit services to allow smaller firms to gain a foothold inthe upper tiers of the market. As part of a series of measures to open up themarket and improve transparency, the agreed text introduces a prohibition of"Big 4-only" contractual clauses requiring that the audit be done byone of these firms.

"I am pleased and relieved that we have managed tobring this important piece of legislation home just in time, before the end ofthis parliament's mandate, otherwise a lot of important and worthwhile workcould have been wasted and investors would have been kept waiting even longerfor much-needed reform."

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