European Union audit reform and Brexit negotiations have a common theme: the EU’s chief Brexit negotiator Michel Barnier.
Many of the big players in the accounting marker — especially the Big Four firms EY, KPMG, PwC and Deloitte — will have in-depth experience with negotiating with the former head of the European Commission.
Timeline for Brexit
- September 14, 2018
- September 14, 2018
And they won’t remember the talks fondly.
Barnier was ruthless in his dogged mission to rein in the Big Four and their long-standing relationships with some of Europe’s biggest companies and UK prime minister Theresa May would do well to study Barnier’s recent battles.
Barnier took on the challenge to probe the so-called long-lasting relationships between auditors and clients back in 2010 as the then commissioner of the European Commission.
His initial proposal was branded controversial and extreme by many commentators, professional bodies, and industry players.
His suggestions ranged from mandatory shared audits, where two or more firms are to audit one client, to a potential break-up of one of the big firms.
After a gruelling four years of EU legislative proceedings and negotiations, accompanied by fierce lobbying by the Big Four firms, the final legislation was a much watered down version of the initial proposals.
But it didn’t come easy.
However, now the reforms have been put into place, it seems Barnier may have come closer to the deal he wanted.
Since its implementation in mid-June 2016, the market has had to make fundamental changes, including mandatory rotation of audit engagements, which brought to an end 50-year-old relationships between some of Europe’s biggest institutions, banks, listed companies and their auditors.
It also imposed restrictions on how auditors could offer consulting services to clients.
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What does this mean for Brexit?
Barnier is likely to start as ruthless negotiator and set the bar of demands, obligations, and cost to the UK high.
He knows there will be blow back however. It’s unlikely he’ll expect his initial proposals to sail through.
Meanwhile, the Big Four firms are already offering advice on Brexit and their experience of negotiating with Barnier won’t go unnoticed.