APB tightens Ethical Standards for Auditors
News types: Codes and Standards Announcements
Published: 17 December 2010
The Auditing Practices Board (APB) today publishes a Feedback Statement and revised Ethical Standards for Auditors and the FRC issues revisions to its Guidance on Audit Committees, following their parallel consultations in July 2010.
Respondents to the APB’s consultations on its Ethical Standards indicated that 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.
Such concerns are entrenched, re-emerging after consecutive corporate failures. The APB believes that it is important to address these concerns because the perception, as well as the reality, of auditor independence is critical to investor confidence in the quality of audit.
Respondents to these consultations (published in July 2010) were overwhelmingly supportive of proposals to address perception concerns through a combination of measures to:
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Increase the rigour with which auditors assess threats to their independence;
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Introduce a new non-audit services disclosure regime; and
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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:
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To extend the guidance to auditors in relation to conflicts of interest and to require them to consider the consequential implications for their independence;
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To prohibit the provision of restructuring services in certain circumstances; and
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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.”
A copy of the APB’s Ethical Standards for Auditors and its feedback paper may be downloaded free of charge from the publications section of the APB’s web site at http://www.frc.org.uk/apb/publications/ethical.cfm and Feedback and Consultation Paper: The Provision of Non-Audit Services by Auditors.
Notes to Editors
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The FRC is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
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The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:
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establish high standards of auditing;
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meet the developing needs of users of financial information; and
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ensure public confidence in auditing.
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