In response to the recent financial crisis, the European Commission (EC) released a Green Paper titled “Audit Policy: Lessons from the Crisis.” The Green Paper proposes multiple changes to promote auditor independence and competition in the European Union. Key proposals include:
- Requiring companies to periodically rotate external audit firms
- Requiring companies to hire more than one audit firm to conduct the audit
- Requiring a third party, not the board of directors, to appoint the auditor.
The EC is seeking commentary to help improve new policies slated to begin in 2011. This week, NACD submitted a comment letter voicing our opinion on the undesirable consequences that may result from removing roles that are typically the responsibility of audit committees. While auditor independence is crucial for every organization, such governance mandates run the risk of undermining corporate governance.
To read our comment letter to the European Commission, click here.