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Two takes on private company standard-setting
special report: tax season kickoff
Your guide to the start of 2012 ;ling
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New disclosures on multi-employer plans
the spirit of accounting
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New trends in charitable giving
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August Aquila on making your clients happy
After you go paperless, you have to stay paperless
Care about your reception area
Generational Viewpoints: What’s good about old school?
29 VAR News
31 M&A Watch
36 New Products
37 Advertiser Index
Is reform just across the pond?
Acollege classmate of mine who was an unabashed Europhile often lectured anyone within shouting distance about how many of the famous trends throughout history — whether in clothing styles, literature, art, cuisine or automobile design — inevitably began in Europe before
gradually making their way across the Atlantic. His ultimate goal was to travel throughout that continent
and, with any luck, have a manuscript chronicling his adventures published. Sadly, he fell well below
his Hemingway-esque ambitions — save for a protruding stomach and bushy beard — and last I heard
he was operating a bookstore/café somewhere outside Lyon.
More recently, however, there’s been a groundswell building across the ocean, and rather than haute
couture or cuisine, it involves trend-setting of a far more lasting nature — that of sweeping auditor reform.
And it has moved beyond the preliminary discussion phase.
Last month, the European Commission proposed a draft law that could
potentially split up the largest auditing ;rms over there, and mandate the use
of a separate entity and name for their advisory and non-audit practice units.
Introduced by Internal Markets and Services Commissioner Michel Barnier,
the proposals seek to clarify the auditors’ role and their subsequent response
to Europe’s ;nancial crisis, as well as to create guidelines to strengthen
But one of the main goals is to create greater diversity (read: choices) of
auditing ;rms, which to no one’s surprise is dominated over there, as here, by
the Big Four. Auditing ;rms would face prohibitions on providing non-audit
services to audit clients, while the larger auditing practices would be required
to divide their audit services from non-audit in an e;ort to avoid any and all
con;icts of interest. And of course, what audit reform measure would be
complete without ;oating the concept of mandatory auditor rotation.
Public companies would be required to rotate their auditing ;rms
after a maximum engagement period of six years, and an audit ;rm
would have to wait four years before engaging the same client again. A joint audit engagement — which
is encouraged under the proposal, but not mandatory — would carry a nine-year maximum term.
But wait, there’s more. ;e commission also proposed the concept of creating a single market for audit
services, described as a “European passport,” thereby allowing auditors to practice across Europe once
they become licensed in a member state — much like the CPA mobility concept in the U.S.
;e draft is obviously designed to enhance and improve the quality of audits throughout the European
Union and help restore public con;dence in ;nancial statements, particularly with regard to large public
institutions, banks and insurance companies.
To be sure, there’s been more than a little discussion on domestic shores with regard to auditor reform.
Not so long ago, PCAOB Chairman James Doty outlined a laundry list of auditing reform measures,
including the oft-mentioned auditor rotation, disclosing the engagement partner’s name in the audit
report, new standards for broker-dealer engagements, and making disciplinary hearings against audit
;rms public, to name a few.
To date, there’s been no shortage of feedback within the profession about auditor reform in the U.S.
Some opine that it’s long overdue, while others outline the drawbacks associated with ;rm rotation
and service prohibitions.
But should large-scale auditor reform ever make it here, it will surely be around longer than many
transient European imports like extra-wide bell bottoms and sous vide cooking.
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