European officials, concerned over the dearth of global audit firms, have compared the dwindling roster of larger practices and its implications to a pending explosion.

"Already we have a time bomb," said Dr. Alexander Schaub, director general of the European Commission's internal market division, in a recent keynote address to the European Accountants Federation, here. He noted that just 12 years ago, the global lineup consisted of the Big Eight. Then a series of consolidations resulted in the Big Five, which shortly became the Big Four in 2002 when Andersen imploded following the Enron scandal.

"The trend seems almost too clear," said Schaub, whose division co-ordinates the commission's policy on developing a single market in several sectors, including financial services.

There were good arguments in favor of global audit firms, which could apply the rules firmly because their profit did not just depend on a limited clientele. Global firms could develop specialized expertise to deal with complicated global clients in, for instance, the financial sector.

Now, however, with only four major auditors, it is not uncommon for international client companies to employ all of the global audit firms at the same time - for different services.

As a result of this cross-selling of services, Schaub wondered how auditor independence would be preserved.

He noted that audit firms were very often organized as loose networks of independent companies. "This was surely an efficient way to ensure presence in virtually every country of the globe and effectively exploit the image that is so important in the audit profession."

But there is another side to the coin. "We have seen examples of how quickly an image can be destroyed. Audit networks have to be more robustly managed to avoid serious mishaps from occurring. A central instrument [required] is internal quality control," Schaub told the FEE attendees. "Already we were facing complex questions. It was in the interests of the profession not to sit on the top of a volcano."

Schaub's metaphor was believed to be a reference to the scandal at insurer Equitable Life, where 15 former directors were charged with financial misconduct and the company said that it would sue auditor Ernst & Young for £2.6 billion.

Schaub said that the commission was currently looking for solutions for the European market, including the issue of auditor liability. The FEE opposes unlimited liability. Any liability should be "proportionate." The FEE is also opposed to the mandatory rotation of auditors.

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