You ask: how can a firm provide unbiased audits to a professional client? They can’t. For any independence to be achieved there must be tight and narrow restrictions on the type of consulting services an auditor can provide a company.
The Wall Street Journal reports that the European Commission has launched consultations on proposals to regulate audit firms. European regulators are rightly leery of the influence the “big four” hold in the financial world. They are exploring programs that will prevent the possibility of overreliance on these firms. Such reliance can result in more fragility in the market. The strong Anglo-American presence in the auditing world is certainly not helping the Auditors’ case.
To put the significance of this discussion in perspective, the big four (Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG) provide 85% of auditing services to top companies in Europe. What’s more, they also provide financial consulting services to the same companies they audit. You ask: how can a firm provide unbiased audits to a professional client? They can’t. For any independence to be achieved there must be tight and narrow restrictions on the type of consulting services an auditor can provide a company.
If the financial disaster has taught us anything, it is that unbiased regulation—for example, audits—of the financial sector is integral to long-term stability. The European Commission deserves our praise for tackling the issues surrounding these behemoth companies and endeavoring to loosen their grip on big business in Europe.
Here’s the tricky part:
The EU must avoid the potential dangers of loosening regulation in countries where it is already strong (France and the UK) in its attempt to codify rules across state lines. This is no easy task, but thankfully key ministers are already on board to help restore order to European business.
Will the EU pave the way towards greater accountability and transparency? It sure looks to be on the right track. Stay tuned for updates and please post your opinions on this important change in global business practices.
Assisted by Zach Kady