On May 16, 2002, the European Union (EU) issued long-awaited guidelines on auditor independence in an effort to avoid an Enron-type incident. Among other things, the guidelines recommend that accounting firms rotate audit partners after seven years with the same client and partners wait two years before joining a company they have audited. The recommendations are not binding. Each country is free to adopt stricter requirements.

AccountingWEB's sister site in the U.K. said the reforms were generally welcomed by European accounting firms and are seen as a way to harmonize audit regulations among the 15 member countries. Press accounts indicate European officials are also trying to encourage harmonization with regulations for U.S. capital markets.

Prospects For U.S.-European Cooperation

Reuters said the EU challenged the U.S. to tear down "massive barriers" to trading European securities in America and help build an integrated transatlantic securities market. EU Internal Market Commissioner Frits Bolkestein said he envisions "an integrated transatlantic securities market of 700 million people that would enable U.S. market participants such as broker-dealers, investment firms, banks, (to) have direct access to European securities markets."

To help make his vision a reality, Commissioner Bolkestein said he would urge U.S. Securities and Exchange Commission (SEC) Chairman Harvey Pitt to recognize International Accounting Standards for European firms registered with the SEC. Next week, he plans to ask Chairman Pitt to drop the requirement for a reconciliation with U.S. generally accepted accounting principles.

In response, the SEC has said it will continue to guard against any "regulatory arbitrage" that would allow companies to pick the softest accounting rules. However, SEC spokeswoman Christi Harlan told Reuters: "Chairman Pitt is interested in easing the restrictions on the access to U.S. capital by foreign markets. He has directed the SEC staff to craft a proposal that will achieve the goals of more seamless global market access while minimizing the possibility of regulatory arbitrage with U.S. exchange requirements."

Read the European’s Union's press release, recommendations and frequently asked questions.

-Rosemary Schlank