‘Big Four’ reaction to Barnier reforms ostrich-like - Swinburne

A leading MEP has criticised what she called an “ostrich mind-set” of the ‘Big Four’ accounting firms in response to European Commission proposals for audit reform.

Dr Kay Swinburne was speaking at an event organised by ICAS, Scottish Financial Enterprise and the Investor Relations Society.

Swinburne said that she had asked the Big Four to come to her with proposals for improving the audit market, but that 18 months after these were due, she still had not received them.

She said that the audit market could be improved, and urged audience members to engage with the European Parliament as it prepares its own draft legislation, following the Green Paper of Internal Market and Competition Commissioner, Michel Barnier.

Barnier’s Green Paper on audit market reform called for the breaking up of the Big Four into audit services and non-audit services.

A Conservative MEP and member of the EU Economic and Monetary Affairs committee, Swinburne is one of the rapporteurs preparing the EU Parliament’s proposals.

She said that Barnier considered audit to be ‘the dog that didn’t bark’ in respect of the financial crisis; that it had not sounded the alarm.

She said that the Parliament was “not going to back down” on audit reform, and that Barnier was “not likely to get what he wants”, but stressed the importance of input from audit professionals about alternatives to his plans.

Commission officials who worked on proposals such as those for reform of the audit market may have done so for years, and that those who opposed the proposals needed to have alternate solutions, and not simply say “it doesn’t work”.

In a wide-ranging discussion, Swinburne mentioned several times the importance of engagement with the EU legislative process, saying that the UK had not always been good at this.

She said that she was currently dealing with 56 pieces of legislation or directives in the economic area, and that EU had the most interactive legislative process she had ever come across.

With proper engagement there was scope for significant amendments to be made between the first draft of legislation and the final version, Swinburne said.

The UK was “incredibly bad at doing it properly,” Swinburne said.

She said that legislation which was coming from Brussels in relation to corporate governance would have a big impact on the UK.

Many people felt that because the UK already had safeguards in place that this area “had been dealt with”, but that lesson which had been learned in the UK had yet to be adopted across Europe.

‘Comply or explain’, for instance, doesn’t work in Europe, Swinburne said. “There is no concept that this can happen.”

The mind-set in Europe was that guidelines must be in legislation to be followed.

There was a “worrying” trend toward regulation, rather than directives, in the EU, Swinburne said, and a perception that the UK does not regulate.