WRITTEN QUESTION E-2058/02 by Charles Tannock (PPE-DE) to the Commission. The Enron and WorldCom scandals and the role of accountancy firms.
Date: 2002-07-11
Institutions: European Parliament, Provisional data
Subjects: audit, business ethics, consultancy, economic offence, financial legislation, financial market, professional ethics, shareholder

C 137 E/42

Official Journal of the European Union

EN

12.6.2003

In particular in the area of upgrades or licence renewal for software, the company is intending very shortly
to introduce a number of disproportionate price increases.

Is the Commission aware that, while the investigation is going on, Microsoft is continuing to abuse its
dominant position, specifically by imposing new licensing arrangements for software?

Is the Commission aware that swift action on its part is desirable in view of the major economic interests
at stake and the possible damage to European companies?

What action does the Commission intend to take against Microsoft in the short-term?

Answer given by Mr Monti on behalf of the Commission

(1 August 2002)

The Commission is aware of Microsoft’ revised practices as regards the pricing of its software upgrades and
licence renewals. As the Commission has not yet formally investigated this issue, it is not in a position to
confirm or deny whether such practices may constitute an abuse of a dominant position.

As the Commission has highlighted in its reply to written question E-1823/02 by Mr Meijer (1), for reasons
of efficient allocation of its limited resources and in light of its ongoing case against Microsoft, the
Commission agreed with several national competition authorities in 2001 that
these competition
authorities would conduct the first analysis of Microsoft’s ‘upgrade’ licensing policy. Taking into account
the work that has been done by the relevant national competition authorities on this issue,
the
Commission is currently examining with these authorities the most efficient way to carry the investigation
forward.

(1) OJ C 92 E, 17.4.2003, p. 95.

(2003/C 137 E/048)

WRITTEN QUESTION E-2058/02

by Charles Tannock (PPE-DE) to the Commission

(11 July 2002)

Subject: The Enron and WorldCom scandals and the role of accountancy firms

What lessons does the Commission believe should be learned from the series of financial scandals that
have recently rocked Wall Street if investor confidence and the assets of millions of pensioners and
shareholders throughout the European Union are to be protected? In particular, bearing in mind the
extraordinary role played by Arthur Andersen in both the Enron and WorldCom scandals, has the
Commission discussed with Member States the possibility of separating auditing and consultancy roles for
accountancy firms to prevent any future conflict of interest?

Answer given by Mr Bolkestein on behalf of the Commission

(9 September 2002)

The core of the Commission’s approach to regulating financial services is implementing the Financial
Services Action Plan (FSAP) by 2005 in line with the European Council conclusions. This means agreeing
to European rules in many different areas, ensuring appropriate levels of investor protection which is at
the heart of those measures.

The Commision published on 18 April a ‘first response to Enron related policy issues’ (1). This paper
outlines the main policy actions in 5 key areas to help to prevent similar catastrophies in the Union.
Several of those actions were already being prepared in the light of the FSAP.

12.6.2003

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Official Journal of the European Union

C 137 E/43

In particular, as early as in 2000 the Commission had proposed a pension fund Directive including the
prudent person principle for asset allocation which is further clarified by some general quantitative rules,
such as an investment ceiling of no more than 5 % of the sponsoring undertaking’s portfolio as a whole.
The Ecofin Council has recently agreed politically on the main contours of this proposal in line with the
first reading in the Parliament.

One of the particular post-Enron policy actions was the adoption, on 16 May 2002 and following a
2-year-preparation, of a Commission Recommendation on auditor’s independence. In the light of Enron’s
collapse the draft version of the Recommendation was re-discussed at the Union’s Committee on Auditing
which includes representatives of all Member States regulators. A large majority of this Committee
expressed the view that a strict prohibition of the provision of any additional service to the audit client
would not be in line with the comprehensive and innovative approach chosen to regulate auditor’s
independence.

In particular,

The basic principle outlined in the Recommendation is that the auditor cannot conduct an audit if he/she
has any relationship or provides any service to the audit client
that would compromise his/her
independence.
the auditor cannot provide any additional service that would include
participation in decision-making on behalf of the audit client. Furthermore, the Recommendation suggests
that whenever the auditor provides additional services to the audit client, horizontal safeguards must be
put in place. These include: a declaration in writing to the governance body of the audit client that none of
the provided services could compromise the auditor’s independence as well as a detailed public disclosure
of audit and non-audit fees.

The Recommendation contains descriptions of circumstances where ‘prohibition’
is the only adequate
safeguard. For example, the auditor should not provide valuation services involving a significant degree of
subjectivity where the amount at stake would have a material
impact on the financial statements,
participate in the preparation of accounting records and financial statements for listed companies or
provide a short list of candidates for key financial and administrative posts in the case of public interest
entities.

Where Member States believe there is a need to go beyond the approach set out in the Recommendation,
both the nature of the instrument and the its minimum harmonisation requirements would allow this.

It is important to emphasise that current corporate governance systems in virtually all Member States allow
individual companies, their governance bodies or their shareholders to act in a manner that would
adequately address further possible concerns about auditor’s independence. For example, under several
national laws an individual company could decide to stop buying additional services from its auditors or to
(rotate them) subject them to a rotation system.

Finally, given recent circumstances, the Commission is following with interest the on-going debate on
these issues in the United States, including recently adopted legislation. In the light of the forthcoming
report of the Winter group on corporate governance issues (expected by October), the Commission will
consider whether any further measures are necessary at European level.

(1) http://www.europa.eu.int/comm/internal_market/fr/company/index.htm.

(2003/C 137 E/049)

WRITTEN QUESTION E-2062/02

by Eluned Morgan (PSE) to the Commission

(11 July 2002)

Subject: State aid

Would the Commission consider state aid exemption for businesses which suffer hardships due to extreme
circumstances, for example the Foot and Mouth crisis in the UK?