The financial crisis that began in 2007 greatly undermined the integrity of the financial system. Measures were therefore suggested and some adopted to regulate various player of this industry in the hope that reoccurrence of such events would be prevented. Particularly, the roles of the banks, regulatory institution (such as central bank), rating agencies, and hedges funds, were promptly investigated and recommendation proposed. In contrast an important player, the Audit firms, appeared to have escaped the probing. In September 2011 things turned out to be different when a radical audit reform proposed by a commissioner of the European Commission internal market and services, Michael Barnier, was leaked ( Fielding 2011; European Commission 2011a).
Background of the EU Radical Reforms of Audit Market
Under his proposal Barnier consider Audit firms as the dogs which did not bark during the financial crisis, therefore questioning their effectiveness (Fielding 2011). He argues that Auditors should have played a bigger role in warning about the unhealthy financial position of their clients. Instead they offered commendable audit reports that were followed almost immediately by massive losses reported by the institution specifically from 2007 to 2009 (European Commission 2011a). Considering huge sums of taxpayers’ money amounting to € 4, 5888.9 was used between 2008 to 2009 to support this banks, he considered it to be vital to analyze all components of the financial system and suggest necessary reforms. According ton Barnier, undertaking the reforms will restore confidence especially in the financial sector. Investors and other interested parties will be able to access easily in a cost-effective manner companies...
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...s, H. (2011) ‘Big four auditors face massive shake-up.’ Reuters. [online] 27th September.
[Accessed on 10th August 2012] http://uk.reuters.com/article/2011/09/27/eu-auditing-idUKL5E7KR2FB20110927
Stokdyk, J. (2011) .Retaliation kicks in early EU audit reforms’. Accounting Web. [online]. 5th
October [Accessed on 10th August 2012] http://www.accountingweb.co.uk/blog-post/retaliation-kicks-early-eu-audit-reforms
The Economist. (2011) ‘Auditor Rotation: Musical Chairs.’ The Economist. [online] 3rd
September [Accessed on 10th August 2012] http://www.economist.com/node/21528279
Thompson, S. (2011) FTSE 100 Audit committee chairs question the rationale of EU audit
reforms. ICAEW [online] [Accessed on 10th August 2012] http://www.icaew.com/en/about-icaew/newsroom/press-releases/2011-press-releases/ftse-100-audit-comittee-chairs-question-rationale-eu-reforms
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