The European Commission is to publish proposals to curb the power of the big four accountancy firms by forcing them to abandon their consultancy work and to share audit work with smaller rivals.
The draft green paper, compiled by European internal markets commissioner Michel Barnier, aims to restore trust in financial reporting in the wake of the financial crisis.
According to the Financial Times, companies with balance sheets of more than £850m would be forced to hire two auditors to conduct a joint-audit of their books, including one by a firm other than Deloitte, KPMG, Ernst & Young or PricewaterhouseCoopers.
The plans will also stop auditors working for a big company for more than nine years, in order to stimulate competition.
The draft proposal, seen by the Financial Times, says non-audit work is a “source of conflict of interest” and says: “Audit firms of significant dimension should… not be allowed to undertake other services unconnected to their statutory audit function such as consultancy and advisory services.”
In July, the Office of Fair Trading referred the audit market to the Competition Commission over concerns the dominance of the big four is hitting competition.
In March, the FSA referred several auditors to auditing bodies after uncovering serious failings in client asset reports. The move followed a consultation paper on improving client asset reports last September triggered by a review in 2009 which found that auditors were providing unchanged or “clean” reports despite significant breaches of client asset rules.