Plan for audit ‘musical chairs’ under fire

Date: 12/02/04

EUROPE's leading accountant has attacked European Commission plans, which could lead to many listed companies changing auditors every seven years.

The proposals are aimed at boosting confidence in EU financial reporting, following several high-profile cases - Italy's Parmalat being the most recent - involving accounting "black holes".

David Illingworth, president of the Institute of Chartered Accountants in England and Wales, warned that ditching an audit firm every seven years could do more harm than good.

Instead, he favours an alternative option put forward by the Commission, that would require senior partners responsible for auditing a particular company's accounts to be rotated every five years - a practice that is already mandatory in the UK.

Illingworth said his members invest vast resources into building up the expertise needed to take on, often highly complex, auditing jobs.

Frequent audit firm changes could mean that some of this expertise is lost, he warned, and could lead to auditors making more mistakes.

"A majority of cases - where an auditor may not have spotted something - take place within two years of appointment. Where there are problems, you will find that they often occur in the first years," added Illingworth, a partner at KPMG.

Frits Bolkestein, the commissioner for the internal market, is expected to unveil proposals to change the Union's 8th company law directive next month.

Experts predict his blueprint will boost the independence and quality of audits by helping to weaken cosy links between firms and lucrative clients. The result will be better information for would-be investors, they say.

David Illingworth, President of the Institute of Chartered Accountants in England and Wales, has criticised European Commission plans which could require listed companies to change their audit firm every seven years.

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