Reducing the perception gap
There should also be a more consistent and higher quality of disclosure in the financial statements of the quantity and nature of the non-audit services provided. The greater the level of non-audit services provided by the company’s auditor, the greater the level of disclosure that would be required to justify this. In regard to the latter recommendation it is proposed that corporate entities adopt this best practice and that such disclosures be allowed to evolve over the next 2 years before law and regulations are subject to revision.
These are the two main recommendations in a report by a Working Group established by the Institute of Chartered Accountants of Scotland to examine the issue of the provision of non-audit services by external auditors after it was raised by the Treasury Select Committee in their report into the Financial Crisis. The Working Group has submitted the report to the Auditing Practices Board (APB), whose consultation on the provision of non-audit services ended on Friday.
The Working Group, which comprised representatives from the investment community, the FTSE 100, audit firms and academia also concluded that there should be no outright prohibition on auditors providing non-audit services to their listed audit clients. This view was supported by a survey of audit committee chairs and finance directors of the FTSE 350 companies. 100% of the respondents did not support an outright prohibition on auditors providing non-audit services to their listed company clients. This also echoed the views of those investors who were consulted.
The Working Group’s Chairman and Finance Director of Ignis Asset Management, Ian Paterson Brown said, “We have had a very full debate and have also consulted widely and there appears no rationale or appetite for an outright ban on auditors providing non-audit services to their listed audit clients. However, there is a need for audit committees to make public their specific policies over procuring non-audit services and better explain their processes for ensuring the independence of the auditor. We believe this would help to reduce the ‘perception gap’ which undoubtedly exists in relation to this issue.”
Issued: 3 February 2010
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