Image caption Michel Barnier believes the financial crisis has shaken confidence in audit firms

The world's four major audit firms could face break-up under draft European Commission (EC) proposals.

Deloitte, Ernst & Young, KPMG and PwC could be forced to split into audit and consulting arms.

EC commissioner Michel Barnier said there were conflicts of interest and issues exposed by the financial crisis that needed addressing.

The firms rejected claims they were "an oligopoly", and said their auditing expertise would be harmed by a split.

Mr Barnier, internal market commissioner, said: "Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary."

Auditors have been criticised that they gave a clean bill of health to financial institutions, many of which ran into trouble shortly afterwards.

'No evidence'

Mr Barnier, who has also pushed for changes among credit ratings agencies such as S&P and Fitch, criticised the Big Four's concentration of power.

They audit the books of about 85% of major corporations in many EU states, a situation the Commission said was "in essence an oligopoly".

Under the proposals, the audit firms would have to rename and rebrand operations, radically changing their business model.

EU states and the European Parliament have the final say on Mr Barnier's proposals, a process that could take up to 18 months.

Audit firms criticised the proposals.

KPMG's European head Rolf Nonnenmacher said: "The capability of firms to provide quality audits will be diminished if auditors are separated from wide-ranging advisory expertise including, crucially, risk management in the financial sector."

PwC's UK chairman Ian Powell said Mr Barnier had not provided "any concrete evidence for any positive impact of these proposals on audit quality or properly assessed the additional cost burdens for business."