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EU heads towards US-style auditing rules

In March the European Commission plans to put forward specific proposals to improve auditing and corporate governance. While it may look like the Commission is reacting quickly after the Parmalat scandal, it actually began work last May, in response to US corporate scandals and the EU's single market, which has increased cross border corporate activity.

The Commission is expected to propose that: a group auditor is fully responsible for auditing group-consolidated accounts; companies must rotate their main audit partner every five years or rotate their entire auditing firm every seven years; an independent audit committee must be used for all listed companies; and, all directors collectively must be responsible for company accounts.

What has changed from when the Commission began working on these proposals ? and is a direct result of the Parmalat scandal, where fraudulent operations covering several jurisdictions have been found ? is the idea that cooperation between oversight bodies at the European level and third country regulators such as the US Public Company Accounting Oversight Board should be enhanced. This is a turnaround from the Commission's initial disdain for the PCAOB's requirement for EU auditors dealing with US-listed companies to register with them.

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