LONDON The world's top audit firms were slammed by the European Commission on Tuesday for "over lobbying" against a planned EU shake-up aimed at encouraging more competition.
The European Union's executive proposed its draft law last November which could lead to the Big Four - PwC PWC.UL, KPMG KPMG.UL, Deloitte DLTE.UL and Ernst & Young ERNY.UL - having to separate audit and advisory services in a bid to increase competition.
The four check the books of nearly all blue chip companies in the world. The reform would force clients to switch auditors after six years, a process known as rotation. Auditors would also be barred from advising clients whose books they already check.
The proposals have split the industry in two.
The Big Four are campaigning hard to stop many of the core changes from being approved by the European Parliament and EU states. Smaller auditors are urging lawmakers to stand their ground as the prospect of a bigger market share looms.
"The lobbying has been fierce and has been excessive in our view," Arvind Wadhera, a senior European Commission official, told a hearing on the reform in parliament.
It was "worse" than what he witnessed with banks, a sector seen as a benchmark for bending the ear of lawmakers. He invited the auditors to "write rather than trying to dismiss all the proposals made by the commission at all sorts of fora."
"Our resolve is even firmer," Wadhera added.
Brussels wants to crack down on auditors after EU member states had to pour 3 trillion euros into the financial sector during the crisis.
Some 150 banks had to be rescued, but none of their audits had flagged any problems, Wadhera said.
Antonio Masip Hidalgo, a Spanish centre left member of parliament, said: "The Big Four have done everything they can to stand in the way of further regulation. There is a lot of effort in trying to maintain the status quo."
Sajjad Karim, the British centre-right lawmaker who is steering the reform through parliament, said he would continue listening to everyone.
"So far, as all of those interactions are concerned, not a single interaction has led to me being concerned in any way as to the amount of input coming in my direction," Karim said.
None of the Big Four were invited to speak at Tuesday's hearing. PwC and KPMG declined comment on the hearing. Deloitte and Ernst & Young had no immediate comment.
The clashes echo what is happening in the United States where the audit regulator has met fierce resistance to the possibility of auditor rotation there too.
The Big Four spent a combined $9.4 million last year on lobbying against regulatory changes, according to a Reuters analysis of congressional disclosure reports.
Officials from some of the Big Four said on condition of anonymity they have a right to put forward their views and reject accusations of overlobbying.
"We are simply stating our case and leaving it to others to make their minds up. We have a strong argument and we've seen that business, the real winners and losers in all of this, have made their feelings very clear on proposals such as mandatory rotation," one of the officials said.
There was support from major audit customers to row back on some of the proposals, even though British blue-chip companies have stayed with the same auditor for 48 years on average.
"Investors consider that mandatory rotation could be costly and disruptive," Liz Murrall, a director at the UK's Investment Management Association said.
Andrew Brown, who represents smaller auditors, said if Europe did not act to tackle market concentration then individual member states would.
The UK competition watchdog is already probing the sector.
(Editing by David Holmes)