EU proposes reform of auditing sector

The European Commission has proposed a series of new reforms to the auditing sector in the aftermath of the financial crisis.

Draft proposals are being discussed that would see the world's largest auditing firms having to split their operations between auditing and consulting arms, in order to avoid conflicts of interest.

This comes after European policymakers questioned auditors for having given a clean bill of fiscal health to many of the banks at the centre of the meltdown, which subsequently required taxpayer bailouts.

Internal market commissioner Michel Barnier said an "oligopoly" has emerged among larger auditors, which has led to the need for greater supervision of the sector and a lessened concentration of power.

He said: "Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary."

The move has been welcomed by the Public Company Accounting Oversight Board, with chairman James Doty saying it is "essential" that the role of auditors in investor protection is reassessed.