Auditors face restructuring ban
17 Dec 10
New APB proposals aim to tackle perceived challenge to independence
UK auditors face the prospect of a new non-audit services disclosure regime, as well as a prohibition on the provision of certain restructuring services to audit clients, under new rules unveiled today by the Auditing Practices Board) APB.
In its Feedback Statement and revised Ethical Standards for Auditors, the APB summarises the responses to its recent audit consultation, as well as setting out proposed new rules to address concerns over audit independence.
Respondents to the consultation indicated a total prohibition was not appropriate, but acknowledged that there can be a perception of a loss of independence where certain non-audit services are provided by the auditor. This is heightened where the ratio of non-audit fees to audit fees is high.
Respondents were also “overwhelmingly supportive” of proposals to address perception concerns through a combination of measures to:
• Increase the rigour with which auditors assess threats to their independence;
• Introduce a new non-audit services disclosure regime; and
• Increase the role of Audit Committees in overseeing the retention of a company’s auditors to undertake non-audit services.
The APB consultation also included proposals to address certain concerns identified by respondents, namely:
• To extend the guidance to auditors in relation to conflicts of interest and to require them to consider the consequential implications for their independence;
• To prohibit the provision of restructuring services in certain circumstances; and
• To broaden the definition of a contingent fee and further prohibit the circumstances in which non-audit services may be provided on such a basis.
Richard Fleck, Chairman of APB commented: “The issuance of these revisions to the Ethical Standards and to the Guidance on Audit Committees completes an extensive review undertaken over a number of years.
“The changes introduced, taken as a whole, represent a significant tightening of the requirements in relation to the provision of non-audit services by auditors and introduce a new approach designed to address investors’ perception concerns through greater transparency. We believe these changes should better equip shareholders to hold Audit Committees and auditors to account for, and therefore to influence, the choices they make in this important area.”