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APB resists banning non-audit services

The UK Auditing Practices Board (APB) has proposed amended ethics standards designed to increase transparency around audit firms’ provision of non-audit services to audit clients but has stopped short of introducing new restrictions.

The APB launched a consultation on the provision of non-audit services by audit firms to their audit clients in October 2009, following a Treasury Select Committee proposal that auditors should be prohibited from providing these services.

There was an overwhelming view from the 150 respondents that there should not be an outright prohibition or any major change to the conceptual approach taken by the regulator.

The current ethical standards and corporate governance regime were seen as sufficient by these respondents.

Just three commentators (an investor, academic and politician) argued that audit quality is compromised when the auditor carries out any non-audit services.

A number of investor respondents argued there should be greater disclosure about the nature and level of non-audit services provided by auditors.

Corporate respondents also said there was scope for better disclosure of the type of work being undertaken by an auditor and how companies ensure auditor independence is maintained.

The APB’s proposed changes to its ethics standards have, therefore, mainly related to improving transparency and the reporting of information about such services.

Most other proposed amendments aim to clarify the existing rules.

Audit committee guidance

In line with the APB proposals, the UK Financial Reporting Council proposed to enhance its guidance for audit committees to encourage them to consider fees incurred for non-audit services relative to the audit fee.

The FRC proposed audit committees should also provide explanations of their policy on the provision of non-audit services by the auditor and why it was thought appropriate that specific services should be provided.

The deadline for both the APB and FRC proposals is 23 October 2010.

The APB plans that any changes to its ethical standards will apply to audits of financial statements for periods commencing on or after 15 December 2010.

Of the 150 respondents to the APB consultation, 109 were from the corporate sector, 24 from the accountancy profession, nine were institutional investors and there were eight others.


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