EU Proposes New Accounting/Auditing Reform Package in Wake of Scandals

In the United States, it’s Enron. In Europe it’s Ahold and Parmalat. The company names are now synonymous with scandal and all three have spurred wide-scale reforms designed to keep it from happening again.

Yesterday, the European Commission proposed stricter auditing standards in the fight against the corporate scandals that are now affecting Europe, after blowing up here in 2001 and 2002. The U.S. took steps to reign in the accounting profession in 2002 with passage of the Sarbanes-Oxley Act, which among other things created the Public Company Accounting Oversight Board.

The U.S. has demanded that foreign auditors comply with its new rules, which the EU had initially resisted. These new EU rules, written by an EU executive, should help to resolve the differences that remain between the EU and the U.S.

"The directive allows for the provision of supervisory authorities in the EU," Internal Market Commissioner Frits Bolkestein told reporters. "This is very much material to our efforts to provide a common (EU-U.S.) position on oversight of auditors."

The new rules would end self-regulation by the auditing profession by requiring independent oversight bodies to supervise accountants in each EU state, Reuters reported, adding that the rules will enhance cooperation among EU supervisors, will create audit committees for all firms listed on stock markets, will require regular auditor rotation and will crack down harder on rule-breaking accountants.

Like the U.S. rules, the EU’s proposal would also require that non-EU audit firms, including U.S. firms, register with EU officials in the countries where they will be performing audits, Reuters reported.

"Auditors are our major line of defence against crooks who want to cook the books," Bolkestein said. "No one is naive enough to think any directive will stop accounting fraud at a stroke -- you cannot abolish crime -- but what we are proposing would inject more rigour and a stronger dose of ethics into the audit process."

The proposed rules need approval of the EU states and the European Parliament to become law, Reuters reported, adding that most believe the rules will be adopted by mid-2005.

You may like these other stories...

Here's a CPA who truly walks the walk. On March 15, Frank Ryan, CPA, departed San Diego, California, with plans to be in Ocean City, Maryland, by July 2 to teach a course at the Maryland Association of CPAs’ (MACPA...
When Theodore J. Flynn first joined the Massachusetts Society of CPAs (MSCPA) in 1970, it was a different world and a different profession.  The "Big Eight" were still headquartered in Boston. Vietnam War...
Accountant Rickey Charles Goodrich had it a little too good. Many bean counters would kill to serve as financial guru to the likes of Pearl Jam. Goodrich was hired in 2005, and the following year, he became the CFO of Curtis...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.