BEIJING (AFX) - The European Union needs to 'urgently' address concerns that the next big financial scandal could reduce the number of global accounting firms from four to three, an EU briefing document said.
The document, seen by XFN-Asia, was prepared for members of a visiting EU delegation headed by Commissioner for Internal Market and Services Charlie McCreevy in their dealings this week with Chinese officials on accounting and auditing policies.
'The audit firms wish to have a limitation of their liability at least to acts for which they can be held directly responsible for. There is a particular fear that the next corporate scandal would reduce the Big Four to Big Three,' it said.
'I understand these concerns and I consider they need to be addressed urgently,' the position paper said in a list of suggested responses for members of the delegation.
The collapse four years ago of top accounting firm Arthur Andersen over its role in the Enron scandal shook the industry and regulators worldwide.
Over the past 20 years, the number of large accounting firms capable of handling the business of multinationals and the world's largest listed companies has halved due to consolidation.
The remaining four now argue that litigation could further reduce their numbers and are lobbying governments to limit the extent of their liability to claims lodged by disgruntled investors.
The EU briefing paper said that a study into the economic impact of liability regimes in EU member states would be finalized at the end of September.
'Towards the end of the year, I intend to be in a position to assess the options and decide what can be done,' the position paper said in proposed reponses to questions about the possible collapse of one of the Big Four.
During his ongoing visit, McCreevy has met Chinese Finance Minister Jin Renqing and Commerce Minister Bo Xilai as well as other officials.
The formal dialogue is aimed at better coordinating financial, economic, accounting, auditing and government procurement policies between the two trading partners.
The briefing's references to the risks to global accounting firms come as the groups expand rapidly in China and come under extra scrutiny from local regulators.
According to news reports, Deloitte has been sued sued by a minority shareholder in China's Guangdong Kelon Electrical Holdings Co for failing to expose falsified accounts in its audits of the appliance maker. It faces a review of its practices in the case by the country's securities regulator.
Ernst & Young has also came under fire, with China's central bank last week accusing it of releasing 'ridiculous' data on the non-performing loans burden of the country's banking sector. The firm later withdrew the report, apologizing for the figures contained in the report.
Last year, local media reported that PricewaterhouseCoopers had been reprimanded by the Ministry of Commerce for irregularities in its auditing of Chinese electronics manufacturer BOE Technology Group.
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© 2006 AFX News
