UK: the provision of non-audit services by auditors

Last year the Auditing Practices Board published a consultation paper concerning audit firms' provision of non-audit services to the listed companies they audit. Feedback on this consultation has been published today and proposals published to change the APB's Ethical Standards for Auditors and the FRC's Guidance on Audit Committees: see here (pdf) and here (pdf). A prohibition on auditors providing non-audit services to the companies they audit is not being proposed.

UK: developments in corporate governance affecting the responsibilities of auditors of UK companies

The Auditing Practices Board has today published Bulletin 2009/4: Developments in Corporate Governance Affecting the Responsibilities of Auditors of UK Companies: see here (pdf). The bulletin considers the directors' statement on going concern, the corporate governance statement required by the Disclosure Rules and Transparency Rules, and changes to the structure of the listing regime.

UK: Auditors and the Companies Act (2006) - APB Guidance

The UK's Auditing Practices Board (APB) has today published four bulletins providing guidance on certain provisions of the Companies Act (2006) which affect auditors:

(1) 2008/3: The auditor’s statement on the summary financial statement in the United Kingdom
(2) 2008/4: The special auditor’s report on abbreviated accounts in the United Kingdom
(3) 2008/5: Auditor’s reports on revised accounts and reports, in the United Kingdom
(4) 2008/6: The “Senior Statutory Auditor” under the United Kingdom Companies Act 2006

For further information click here.

UK: audit firms' provision of non-audit services to listed companies they audit

Last year the Auditing Practices Board - part of the Financial Reporting Council - published a consultation paper concerning audit firms' provision of non-audit services to the listed companies they audit. This followed a recommendation by the Treasury Select Committee, in its report Banking Crisis: Reforming Corporate Governance and Pay in the City (May 2009) (see para. 237 in chapter 6). Responses to the consultation have now been published: see here.

UK: Auditing Practices Board: ISA (UK and Ireland) 600 - "Using the Work of Another Auditor"

The APB has issued a revision of ISA (UK and Ireland) 600, 'Using the Work of Another Auditor', which will apply to audits of financial statements for periods commencing on or after 6 April 2008. According to the APB's press release:

"The main effect of the revision is to add a new requirement that in an audit of group financial statements the principal auditor should document any review that it undertakes, for the purpose of the group audit, of the audit work conducted by other auditors. This reflects a new requirement in Schedule 10, paragraph 10A, of the Companies Act 2006, implementing a provision of the European Statutory Audit Directive".

UK: APB issues new ISAs (UK and Ireland)

Yesterday the Auditing Practices Board issued 33 new International Standards on Auditing (UK and Ireland), a new International Standard on Quality Control (UK and Ireland) 1 and a revised statement of the scope and authority of APB pronouncements.

The new standards, which incorporate the clarified international standards issued by the International Auditing and Assurance Standards Board, replace the existing ISAs (UK and Ireland) and ISQC (UK and Ireland) 1 and apply to audits of financial statements for periods ending on or after 15 December 2010 (the existing standards continue to apply to accounting periods ending before this date). The new standards adopt a different format from the existing ISAs and contain some new requirements and guidance. A summary of the main changes is available here (pdf). 

UK: long association with the audit engagement - APB issues revised Ethical Standard 3

The Auditing Practices Board has published a revised version of Ethical Standard 3 - Long Association with the Audit Engagement. The revised standard increases the audit engagement partner's maximum period of association with the audit engagement from five to seven years in circumstances where (to quote directly from the standard):

... the audit committee (or equivalent) of the audited entity decide that a degree of flexibility over the timing of rotation is necessary to safeguard the quality of the audit and the audit firm agrees, the audit engagement partner may continue in this position for an additional period of up to two years, so that no longer than seven years in total is spent in the position of audit engagement partner. An audit committee and the audit firm may consider that such flexibility safeguards the quality of the audit, for example, where:

• substantial change has recently been made or will soon be made to the nature or structure of the audited entity’s business; or
• there are unexpected changes in the senior management of the audited entity. 
  

In these circumstances alternative safeguards are applied to reduce any threats to an acceptable level. Such safeguards may include ensuring that an expanded review of the audit work is undertaken by the engagement quality control reviewer or an audit partner, who is not involved in the audit engagement".

UK: ICAS Working Group rejects ban on auditors providing non-audit services to their listed company audit clients

The Working Group established by the Institute of Chartered Accountants of Scotland to consider the issues raised by audit firms providing non-audit services to their listed company audit clients, following the publication of the Auditing Practices Board's consultation paper, has published its final report: see here (pdf).

The Working Group concluded that no benefits would be gained by banning auditors from providing non-audit services to their listed clients. The Group instead recommended greater disclosure and transparency with regard to the policy and procedures in place where the auditor provides non-audit services. The Group also proposed changes to the way in which auditor remuneration is disclosed because, in its view, the current regime has not resulted in useful information being provided.

UK: APB guidance on the audit of public sector organisations' financial statements

The Auditing Practices Board has published for comment draft guidance on the application of auditing standards to the audit of UK public sector organisations: see here (pdf). The deadline for comment is 9 April 2010. 

UK: should auditors undertake non-audit work for their audit clients?

Yesterday's Sunday Times newspaper reported that Pensions Investment Research Consultants (PIRC) is calling for a ban on auditors performing non-audit work for their audit clients. The report cites "fears that it compromises auditors' independence and discourages them from confronting directors on difficult issues" as reasons for PIRC's position. Research by proxy voting agency Manifest is also cited:

The FRC said the level of fees paid to auditors in the FTSE 100 for non-audit work dropped from 191% of audit fees in 2002 — almost double their traditional income — to 71% last year. However, research by Manifest, the voting advisory service, for The Sunday Times shows a significant number of blue-chip companies last year shelled out more in non-audit fees to their auditors than for the cost of core audit work. The firms included Pennon, Experian and SAB Miller. PIRC research found that many smaller companies in the FTSE All-Share paid hefty multiples of auditors’ fees for their non-audit work. The biggest spenders in the 2008-9 financial year included Salamander Energy, Ashmore Group, Berkeley Group, William Hill and Premier Foods, as well as Land Securities, the FTSE 100 property company".

We've been here before: the Cadbury Committee considered whether auditors should be prohibited from providing non-audit services to clients and concluded in its 1992 report (at para. 5.11):

Such a prohibition would limit the freedom of companies to choose their sources of advice and could increase their costs. The Committee was not persuaded that any potential gains in objectivity would outweigh these disadvantages. It does, however, strongly support full disclosure of fees paid to audit firms for non-audit work".

These arguments will be considered again very soon: the report notes that in a few weeks' time the  Auditing Practices Board will begin a consultation on the issue of non-audit work performed by auditors.