FRC prohibits the use of internal audit staff on the external audit team
News types: Statements
Published: 19 June 2013
PN 058
The FRC today introduces a measure that creates a clearer division of responsibility between internal and external audit teams to safeguard against conflicts of interest. By prohibiting auditors from using internal audit staff as “direct assistance” members of the audit team, the FRC is seeking further to ensure the independence of the external auditor and promote greater confidence in the integrity of the audit for investors. The prohibition comes into effect for audits of financial statements for periods ending on or after 15 June 2014.
Nick Land, FRC Board member and chairman of the Audit and Assurance Council, said:
The FRC today introduces a measure that creates a clearer division of responsibility between internal and external audit teams to safeguard against conflicts of interest. By prohibiting auditors from using internal audit staff as “direct assistance” members of the audit team, the FRC is seeking further to ensure the independence of the external auditor and promote greater confidence in the integrity of the audit for investors. The prohibition comes into effect for audits of financial statements for periods ending on or after 15 June 2014.
Nick Land, FRC Board member and chairman of the Audit and Assurance Council, said:
“Prohibiting direct assistance supports stakeholders’ expectation that external auditors should be free from threats to their independence. In determining the effective date of the prohibition, the FRC has taken into consideration that planning the use of the work of internal auditors may take place early in the financial period being reported on.”
In February 2013, the FRC confirmed that it would adopt the revised international auditing standards on the external auditor’s use of work carried out by internal audit. In doing so, it also announced that it was minded go beyond the international standard, and prohibit the direct use of internal audit staff on the external audit team, to enhance the principle of auditor independence.
The feedback to the consultation suggested that there could be logistical issues for audits that have already begun when the prohibition comes into effect. To remedy this, the FRC concluded that the prohibition should be applied prospectively and the implementation date reflects this.
Other revisions to the FRC’s auditing and ethical standards to reflect the revised international auditing standards on the external auditor’s use of work carried out by internal audit will also have the same effective date.
Notes to editors:
- The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
- The revised auditing standards addressing the external auditor’s consideration and use of the work of internal auditors are the International Standards on Auditing (ISAs) (UK and Ireland):
- Read or download 315 (Revised June 2013), (PDF) Identifying and assessing risks of material misstatement through understanding the entity and its environment; and
- Read or download 610 (Revised June 2013), (PDF) Using the work of internal auditors with conforming amendments to other ISAs (UK and Ireland) as identified in the annexure to ISA (UK and Ireland) 610 (Revised June 2013).
- They are intended to implement changes to the corresponding ISAs issued by the International Auditing and Assurance Standards Board (IAASB). The prohibition on direct assistance does not represent a divergence from ISA 610 (Revised). The IAASB makes clear that its requirements and guidance in this area will not be applicable in jurisdictions where direct assistance in prohibited.
- A Feedback Statement on the consultation on the prohibition of direct assistance by internal audit staff can be obtained here (PDF).