EU must hold nerve after Ahold scandal, top accountants warn

Date: 27/02/03

By Peter Chapman

EUROPE'S top accountants have warned the EU to avoid regulatory overkill in response to the scandal surrounding Dutch supermarket giant Ahold.

The collapse of Ahold - after it admitted overstating revenues by nearly €500 million and "significant accounting irregularities" in its American subsidiary - is seen as Europe's first "Enron" style corporate meltdown.

But senior accountants told European Voice that neither EU leaders - who meet for an economic summit next month - nor the European Commission should overreact by issuing calls for burdensome measures to beef-up the way the Union's firms are audited.

"What is clear is there is not a systemic failure at EU level. The Ahold situation looks like it does not change that," insisted Paul Druckman, vice-president of the Institute of Chartered Accountants in England and Wales - the EU's biggest accounting group.

"It is being called "Enron coming to Europe" - but I am not sure that it is - it might be a US problem," added Paul Rutteman, secretary-general of the European Financial Reporting Advisory Group, which helps the EU vet international accounting norms.

Karel Van Hulle, Internal Market Commissioner Frits Bolkestein's head of financial reporting and company law, said yesterday (26 February) a shake-up of EU auditing policy was planned for May.

He said this would call for EU firms listed on stock exchanges to use internationally recognised standards for auditing, mimicking last year's plan to force firms to use the international standards for their accounts from 2005.

He said the Commission would also respond to calls for improved "public oversight" of the auditing profession to boost investor confidence - although he said it was "too early to say" whether this would involve an EU-level panel, similar to the US' new Public Company Accounting Oversight Board.

The accounting chiefs said the industry would "be quite happy" with the move to international audit standards.

But they warned policymakers that a centralised EU system to ensure firms are applying the standards in the right way would be a legal nightmare.

"It would be extremely difficult to do it on a centralised basis," said Rutteman.

Meanwhile, he also warned Bolkestein that efforts to fight the US over the Sarbanes-Oxley act could backfire.

Bolkestein has threatened stringent checks on US accounting firms that are auditing EU firms unless the Americans exempt EU-based accountants from part of the law.

Under Sarbanes Oxley, EU offices of accounting firms that audit firms listed on US markets must register with the new Public Company Accounting Oversight Board. Errant firms could be inspected or disciplined for failing to follow US rules.

Van Hulle said this places an unfair burden on EU firms - despite the Commission's planned audit overhaul - because they are already subject to a system that "leads to results that are certainly equal to the US".

Rutteman agrees. But he said a tit-for-tat response would do more harm than good:

"I don't like regulatory retaliation. It adds to costs all around," he said.

Europe's top accountants have warned the EU to avoid regulatory overkill in response to the scandal surrounding Dutch supermarket giant Ahold - seen as Europe's first 'Enron' style corporate meltdown.