EU’s Proposed Audit Reforms Risk Further Unpopularity with the Business Community Says Accountants’ Survey

Nowadays, politicians are frequently accused of being remote and out of touch with the real world. This is usually because most of them have never had a “proper “career which involves the practicalities of working in a business or in any other environment which has externally imposed financial control. They seem to be blissfully unaware of what it takes to create and maintain a profitable enterprise and appear to spend most of their time devising policies which have little purpose other than to show that they are doing something to earn their generous salaries and expenses.

To make matters worse, this ignorance of how things operate at ground level shows a total disconnect between the economy and the business world. In other words, the economy is viewed as being something on autopilot which continually throws off tax revenues for the politicians to spend on bureaucracies and pet social projects. Meanwhile, the business world is viewed as a raging monster which continually has to be reined in and tamed by legislation, regardless of the costs involved.

Nowhere is this apparent disregard for the business community more blatant than in Brussels which seems to be nothing more than a red tape factory. Little wonder that so many EU economies are now showing such negligible economic growth.

The latest hair-brained proposals to emanate from Belgium look to be no more than a badly thought out, knee-jerk reaction to the banking crisis. In a swipe at the whole business world, not just the profligate bankers, EU policymakers have come up with the idea that companies should only employ auditors who do not provide other advisory or consultancy services. Furthermore, their consultation paper entitled “The Future of Audit policy “suggests that businesses should each have two audit firms working on a shared or joint basis.

If this wasn’t enough to get every Finance Director forming an orderly queue to join the ranks of UKIP, the European Commission is also proposing that no firm engages new auditors unless they have been through a competitive tendering process and then only uses them for a period of 8 years before being replaced, with a “cooling off “period of 4 years before they can be hired again.

Not surprisingly, the UK’s leading audit and accountancy practices are not too enamoured with these proposals either. One top ten London firm, Baker  Tilly, has recently conducted a survey of directors and board level managers of companies about half of which had a turnover of between £5 million and £50 million with the remainder  having revenues of over £50 million – in other words a good cross-section.

Key results from the survey showed that only 17 % of respondents saw no value in being able to source other advisory services from their auditors while a clear majority (57 %) continued to value this option.

In answer to another question, “ How would you feel about 2 firms conducting your audit ? “, a whopping 75% thought this was clearly a bad idea with most citing the likely sharp increase in cost and management time consumed during the audit process.

Baker Tilly’s conclusion is that Europe is not listening to businesses but, there again, we probably knew that already.