European Union plans to regulate and boost competition in the audit market will not improve the quality of company health checks and will increase costs, Britain's auditing policeman said on Monday.
We think that many of the proposals are extremely damaging and threatening to the quality of audit and would do no more than add cost, UK Financial Reporting Council Chief Executive Stephen Haddrill told an Ernst & Young
EU financial services commissioner Michel Barnier is due to publish his draft law next week but an early outline was leaked in September.
Many EU policymakers complain auditors gave banks a clean bill of health just weeks before they had to be rescued in the financial crisis and believe auditors become too close to adequately challenge the companies they check.
The UK competition authorities have just opened a probe into the sector.
People familiar with the situation inside the European Commission and in the industry expect tweaks to parts of Barnier's plans, such as on joint audits and mandatory rotation or switching or auditors, but no major climbdown.
Haddrill welcomed some elements such as the aim of increasing competition and requiring big audit firms to have contingency plans in case they collapse.
The sector is dominated by the Big Four -- Ernst & Young, Deloitte
Barnier wants the big audit firms to work jointly with smaller rivals, a step Haddrill believes will bump up costs and could see things almost disappearing in the gap between the two auditors.
Haddrill also prefers mandatory retendering of audit firms every 10 years rather than Barnier's plans for forcing listed companies to switch audit firm on a regular basis.
He welcomed the European Securities and Markets Authority being given a role to coordinate audit regulation but worried it will not be left alone to do its job.
We thought it was going to emerge like an independent regulatory body but we have seen in the early months of its creation the (European) Commission taking a very close interest in what it's doing and I think exercising a great deal of central and political pressure on it to follow a particular pathway, Haddrill said.
ESMA should retain a high level of independence from the political process, Haddrill added.
He also urged European policymakers to think globally.
If we build a fortress Europe we are going to be doing ourselves a great disservice, Haddrill said.
EU states and the European Parliament will begin an approval process once Barnier publishes his draft law which could see Britain being outvoted unless it gets enough support to make changes.
(Editing by David Cowell)