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Europe

Audit Firm Time Bomb Threatens EU

The contraction in the number of audit firms in Europe over recent years could lead to another Enron-like scandal, warned European internal markets chief, Alexander Schaub.

After Enron, WorldCom, Parmalat and other accounting scandals, hundreds of American companies have been switching to smaller accountancy firms. In Europe the trend is still towards fewer and bigger accounting companies dominating the market -- leading to concerns about the possibility of Enron-like scandals. What was the big eight some 12 year ago has now been reduced to the big four: Deloitte, Ernst & Young, KPMG and PricewaterhouseCooper. Speaking at a meeting of the Federation of European Accountants (FEE) on Thursday Alexander Shaub, director general of internal markets at the European Commission, described the contraction in global audit firms from eight to four as a "time bomb." "Market forces here are not working so companies are not worried about living dangerously -- and that means you can't exclude another Enron-type scandal," he warned, according to British daily The Guardian. To counteract this, the European Commission is considering setting up a coordinating group of oversight boards from member states to keep a closer eye on the competition among accountancy firms. One option is to allow member states to enforce seven-year rotation of auditors. Another is to cap auditors unlimited liability, something which forced the collapse of Enron's auditor Arthur Andersen. (EUobserver.com)

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