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MGI Seeks Legal Advice on European Directive

Global accountancy organisation MGI is to seek the advice of legal counsel on a European Union directive designed to increase the transparency of company annual reports and other financial statements.

The EU Audit Directive came into force in June 2006 – although the UK and other member states have had until 29 June 2008 to put implementing measures in place – with the intention of enhancing confidence in the audit of annual and consolidated accounts. The directive, intended to prevent cases like the £10 billion financial scandal at Italian long-life giant Parmalat in 2004, will be implemented in the UK through measures including those contained in the Companies Act 2006.

The directive has significant implications for MGI, which has more than 200 member offices, including seven in the UK and Ireland, in 70 countries across the EU and worldwide. One of its key aims is to ensure that auditors remain independent of audit clients, which includes making sure that accountancy network firms are also independent of the audit clients of other members of that network.

This effectively means that a firm within a network could not accept an audit assignment if a conflict existed within the wider network. A network would also be required to have processes in place to identify and prevent conflicts that could jeopardise independence.

Now MGI in the UK and Ireland, and in Germany, are seeking the advice of legal counsel to clarify its status as an association or network under the directive. Networks are considered to be more cohesive organisations, aimed at profit-sharing or with common ownership, with common quality control and other procedures and common brand names. Associations are looser, with members strong in their local market and more occasional involvement in international work.

Jonathan Farrow of Weybridge-based MGI Midgley Snelling, MGI UK and Ireland’s international co-ordinator, said: “There is a very real imperative for a clear definition of MGI’s status, in the interests of its member firms and their clients. We believe that as a body focusing primarily on cross-referral of work, MGI falls outside the definition of a network and the additional requirements with which a network must comply and both we and our colleagues in Germany will be awaiting the opinion of our legal advisers with great interest.”