Accountants wary of EU plans

The Institute of Chartered Accountants of Scotland has warned that mandatory rotation of accountancy firms could reduce audit quality.

It emerged yesterday that the “big four” face being forced to split off their lucrative auditing businesses or forgo up to £1 billion in fees under radical proposals from European regulators.

Deloitte, Ernst & Young, KPMG and PwC could be barred from doing any additional work for major international firms they audit, according to a leaked draft of proposals due to be published in November.

Firms might also be required to change auditors every nine years, while the largest listed companies could be required to hire two firms of accountants under hard new rules proposed in a massive overhaul of the accounting sector, which many have claimed was at least partly to blame for the banking crisis.

A spokeswoman for PwC said it would not comment on an unpublished document, but did say that there was “no evidence” that joint audit and mandatory audit firm rotation would enhance quality of their work. Ernst & Young declined to comment.

Deloitte said it supports improving audit quality but rejects joint audits, mandatory rotation and tendering, and a complete ban on non-audit services.

Rolf Nonnemmacher, co-chairman of KPMG Europe, said: “These proposals would lead to a massive reduction in quality of audits.”

However, auditor Grant Thornton, which along with peer BDO has tried to end the stranglehold of the Big Four, welcomed the plans.