The UK Financial Reporting Council (FRC)
has advised larger audit firms to be cautious before entering
agreements that might stretch the internal/external audit
boundary.

The advice relates to a consultation on
non-audit services being undertaken by the Auditing Practices Board
(APB) and public concern over extended assurance services, which
some firms provide in conjunction with an audit.

Former FRC chief executive Paul Boyle, who
ended his tenure at the regulator this month, said the council
thinks it is important audit firms and clients are aware of the
steps being taken by the APB.

Recently, KPMG found its contract with pest
control company Rentokil under scrutiny after it emerged that
Rentokil employed the Big Four firm both as external auditor and to
carry out some internal audit services.

At the time, the Institute of Internal
Auditors chief executive Richard Chambers said even if allowed by
law or statute, this practice creates a perceived impairment of
independence and erodes public trust.

The steps the APB intends to take are:

• Work with the Audit Inspection
Unit and the profession to understand the precise scope of those
engagements that involve the provision of additional services in
conjunction with an audit;

• Seek the views of stakeholders on
the implications of auditors providing such services to their audit
clients;

• Use the information obtained to
determine whether such engagements, or similarly constructed
packages of services, comply with the principles underlying the
APB’s current Ethical Standards; and

• Consider whether the principles of
Ethical Standards relating to such matters require reinforcement
and, if so, in what way standards need to be amended.