A college classmate of mine and an unabashed Europhile often lectured on how many of the famous and popular trends throughout history - whether in clothing styles, literature, art, cuisine or automobile design - inevitably began in Europe before gradually making their way across the Atlantic.

For Todd (not his real name), his ultimate goal was to travel throughout that continent and, with any luck, have a manuscript chronicling his adventures published into a coffee table reader.

Sadly, he fell well below his Hemingway-esque ambitions - save for a protruding stomach and bushy beard  (his nickname around campus was "the immoveable feast").

More recently, however, there's been a groundswell building across the ocean - that of sweeping auditor reform.

The European Commission has proposed a draft law, that potentially, could split up the largest auditing firms there, and mandate them to use a separate entity and name for their advisory and non-audit practice units.

Introduced by Internal Markets and Services Commissioner Michel Barnier, the proposals seek to clarify the auditors' role and their subsequent response to Europe's financial crisis as well as guidelines to strengthen auditor independence.

But one of the main goals is to create greater diversity (read: choices) of auditing firms, which to no one's surprise is dominated over there, like here, by the Big Four.

Barnier recited the usual boilerplate language of someone attempting to ram a reform proposal through official channels, pointing to the "loss of investor confidence" during the financial downslide and its imperative restoration.

As such, auditing firms would face prohibitions on providing non-audit services to audit clients while the larger auditing practices would be required to divide their audit services from non-audit in an effort to avoid any and all conflicts of interest. And of course, what audit reform measure would be complete without floating the concept of mandatory auditor rotation.

Publicly listed companies would be required to rotate their auditing firms after a maximum engagement period of six years and an audit firm would have to wait an additional four years before engaging the same client again. A joint audit engagement - which is encouraged under the proposal, but not mandatory - would carry a nine-year maximum term.

The EC also proposed the concept of creating a single market for audit services, described as a "European passport," thereby allowing auditors to practice across Europe once they become licensed in a member state - much like the CPA mobility concept in the U.S.

To be sure, there's been more a little discussion on domestic shores with regard to auditor reform. Not so long ago, PCAOB chairman James Doty outlined a laundry list of auditing reform measures, including the oft-mentioned auditor rotation, disclosing the engagement partner's name in the audit report, new standards for broker-dealer engagements and making disciplinary hearings against audit firms public, to name a few.

But should large-scale auditor reform ever make it here, it will surely be around longer than many transient European imports like extra-wide bell bottoms and sous vide cooking.

 

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