The European Union has proposed to inject more competition into an audit market dominated by the so-called "Big Four" and address shortcomings highlighted by the financial crisis.
"Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary," internal market commissioner Michel Barnier said.
Policymakers have questioned why auditors gave a clean bill of health to many banks which shortly afterwards needed rescuing by taxpayers as the financial crisis began unfolding.
Mr Barnier said more recent apparent audit failures at Anglo Irish and Lehman Brothers banks, BAE Systems and Olympus "would strongly suggest that audit is not working as it should."
More robust supervision is needed and "more diversity in what is an overly concentrated market, especially at the top end," he said.
Just four audit firms, Ernst & Young, Deloitte, PwC and KPMG, check the books of most blue chip companies in the world, a situation Brussels described as "in essence an oligopoly."
Under Mr Barnier's plan big audit firms will have to separate audit activities from non-audit activities - such as tax and other advisory services - "to avoid all risks of conflict of interest."
EU states and the European Parliament will have the final say on Mr Barnier's draft law, a process that involves haggling and likely changes.
Key elements include requiring a listed company, for which an audit is compulsory, to switch or rotate to another auditor after six years.
If the audit is done jointly with another auditor - a step seen by Brussels as a way to improve quality - mandates can stretch to nine years before compulsory switching.
"Joint audits are not made obligatory but are thus encouraged," the Commission said.
An audit firm would not be allowed to offer non-auditing services, such as tax and other consultancy services, to a company it is auditing.
Officials from the big audit firms have warned that audit costs will increase and quality could suffer but their smaller rivals welcomed Mr Barnier's plans, which would open the door to new business for them.
The UK Competition Commission is already probing the sector and regulators in the United States are looking at audit firm rotation as well.
Reuters
