New Audit Standards Tighten Rules on Accountants’ Services
Seeing the crucial role that auditors’ independence plays in boosting the confidence of investors to the quality of their audit and non-audit services, the Financial Reporting Council (FRC) has amended the audit standards drawn from the consultations in July 2010.
Participants to the consultations facilitated by FRC and the Auditing Practices Board (APB) expressed their support to the revised set of audit standards, though they believed that the notion of imposing “total prohibition” to non-audit services of accountants may compromise their independence, especially at the advent of high ratio of the non-audit fees to audit fees.
Specifically, the APB and FRC have put forward measures for auditors to adopt more stringent procedures in assessing the threats along the course of exercising their independence. The new audit standards also propose disclosure requirements for auditors to include in their non-audit services. Audit Committees of companies are now equipped with the authority of prolonging the auditors’ role of providing non-audit services by retaining them in the company.
Respondents to the consultations raised concerns regarding circumstances which could compromise the interests of auditors. In response to these concerns, the APB sought to require auditors to carefully weigh their interests, ban them from providing restructuring services in specific circumstances, and extend the context of contingent fees.
APB chairman Richard Fleck said the revised audit standards would help to tighten requirements for auditors in providing non-audit services. He added that transparency in the disclosure of non-audit services performed by auditors could also help in addressing investors’ concerns.
With the revised audit standards, shareholders can take auditors to task, thus influencing their decision making process, Fleck added.