The European Commission has proposed tougher auditing rules today that will mark the end of self-regulation for the profession by introducing independent oversight bodies to police accountants in each EU state.
The proposals will also strenghten co-operation among EU supervisors, create audit committees for all stock-market-listed firms, introduce compulsory rotation of auditors and call for tougher sanctions for accountants who break the rules.
Mirroring a US requirement, the proposal will demand that non-EU audit firms, including US ones, register with EU authorities in countries where the audit operates.
Britain relinquished self-regulation of auditors last year, and The Netherlands gave the task to its Financial Markets Authority after the Ahold scandal revealed the country did not have a system of independent supervision.
Ironically Italy, home of the Parmalat scandal, already had most of the proposed measures in place. The fact that those steps did not prevent Europe's biggest corporate fraud suggests that enforcement is a bigger challenge than regulation.
Critics say the proposal falls short of calling for a legal separation of audit from more lucrative non-audit services such as tax advice, seen by some as key to preventing collusion between a company and its accountants.
Even though EU and U.S. auditing supervision may be brought closer, Europe and the United States remain divided as they continue to use a different sets of accounting standards.
The Institute of Chartered Accountants in Ireland has called on the Government to make a decision on the introduction of International Financial Reporting Standards and has called for a debate on auditor liability.