Unable to reach political consensus on regulating auditors, European officials agreed Thursday at a conference here to give the professional oversight bodies more power.
Auditors and politicians both agree additional oversight is required to regain trust lost in the wake of accounting scandals such as those surrounding Enron Corp., the Houston-based energy company, and Parmalat Finanziara SpA, the Italian dairy company.
“The very small number of rotten apples has rotted the good,” said Alexander Schaub, director general at the European Union's Internal Markets Commission. “So the iron rod of the regulators has been necessary.”
Schaub said he hoped to push a new EU law on auditor supervision through the European Parliament by the middle of 2005. Many issues will still be unresolved by then, he admitted. These should then be clarified by a “powerful network” of oversight bodies. Such oversight bodies from the EU's 25 member states would cooperate with the U.S. audit watchdog and possibly with other countries too.
A first informal meeting of national watchdogs will take place in March 2005, hosted in Washington by the U.S. watchdog the Public Company Accounting Oversight Board. It will include oversight bodies from Britain, Germany, Mexico and Japan.
PCAOB Chairman William McDonough welcomed Schaub's proposal. Audit supervision should evolve slowly rather than through hard rules and without pressure from politicians, he said.
“Auditing habits are rooted in the culture and history of a country, and they usually develop faster after there has been a scandal,” McDonough said.
Auditors also welcomed Schaub's proposals.
&”We're comfortable with the principle, but there will be a lot of detail to be filled in,” said Desmond Hudson, incoming CEO of the Institute of Chartered Accountants of Scotland.
Schaub also promised to address concerns surrounding the proposed EU law on auditor supervision. A study into capping the liability of auditors will begin next year, he said.
EU governments are divided. Several say there should be a cap on the liability of auditing firms, citing the spectacular collapse of Enron's auditor Arthur Andersen. The counterargument is that a cap on auditor liability will create an avalanche of calls to cap liability in other professions such as medicine.
Another subject of discord is whether auditors should be able to take outside work is a final subject of discord. Some say auditors should be forbidden to offer their clients other services such as tax advice. But others warn this will shrink the already small number of auditors that companies can contract to check their books. r>
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