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: internal audit services/extended assurance services - FRC advises caution

The Auditing Practices Board - part of the Financial Reporting Council - last month published a consultation paper concerning audit firms' provision of non-audit services to the listed companies they audit. Against this background, the FRC today announced that it had written to larger audit firms explaining the work it is doing with regard to audit firms' provision of internal audit services and extended assurance services in connection with the audit. Whilst the letter has not been published, in the relevant press release the FRC's chief executive, Paul Boyle, is quoted:

The FRC believes it is important that audit firms and their clients should be aware of the steps being taken and may want to be cautious before entering into arrangements which stretch the internal/external audit boundary, not least because it could prove to be inconvenient and/or costly to change such arrangements should the outcome of the FRC’s work be that the Ethical Standards are changed in a way that affects the provision of such services".

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: 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.