At the end of last month, 200-year old asset manager Schroders ended its 57-year relationship with its auditor PwC. The move was widely seen as preparation for new EU-wide auditor rotation rules that will come into force on 17 June this year— rules based on an EU directive that was originally published in May 2014, following a series of meetings and endorsements by the EU parliament that began in December 2013.
The impetus behind the redrafting of EU audit regulations was the string of deficiencies in financial accounts, and in some instances misstatements, as well as doubts among investors regarding the credibility and reliability of audited financial statements that were highlighted by the financial crisis. An excessive familiarity between the management of a company and its audit firm was seen as presenting the risk of conflicts of interest. Finally, there were concerns of a systemic risk, because the audit market was effectively dominated by just four audit firms.
