Oct 19

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Death of the Big Four?

The Financial Times reports that they reviewed a draft recommendation that will be released next month.

In the draft, Michel Barnier, the European Union internal market commissioner, seeks significant new regulation of the Big Four accounting firms (Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers). The draft proposed new requirements that would require:

  1.  The Big Four to completely jettison their consultancies and become audit-only organizations. The underlying purpose is to eliminate the conflicts of interest that occur when the audit clients are responsible for significant business that could influence the auditor to be more lenient.
  2. Audits of large entities performed by the Big Four to be joint-ventured with smaller firms. Effectively, this would strengthen the smaller firms, both by giving them additional work, and by increasing the skill levels of their personnel. The underlying purpose is to break up the strong positions of the current members of this oligopoly.
  3. Require mandatory rotation of audit firms after specific periods. This article discusses a similar U.S. proposal.

Any recommendations would require the approval of EU member states and the European Parliament. Expect massive lobbying from the Big Four against all of these proposals.

The proposals would change the face of public accounting in Europe. Because of the importance of multi-national companies, the impact would be felt worldwide.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/10/death-of-the-big-four/

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  1. EU proposes Big Changes for the Big Four Auditors » Between the Numbers | Between the Numbers

    […] October, we summarized a leaked draft that proposed significant restrictions in the European Union regarding public account…. On November 30, the revised proposal was made […]

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