The Auditing Practices Board (APB) today publishes stakeholder feedback following its consultation in October last year on whether there should be a prohibition on auditors providing non-audit services to the entities that they audit. In parallel the FRC is publishing for consultation updated guidance to audit committees on determining whether a company’s auditor should be permitted to provide particular non-audit services.

The APB’s October consultation followed a report last year by the House of Commons Treasury Committee which proposed a ban on the auditor providing non-audit services. The consultation generated a substantial number of responses from all APB’s stakeholder groups, in particular, including the views of a range of investors.

The overwhelming view of respondents (irrespective of the constituency involved) is that there should be no outright prohibition on non-audit services.

There is agreement, however, that auditor objectivity and independence is perceived to be adversely affected by the provision of non-audit services and that improved transparency and governance would address these concerns.

The APB is therefore proposing changes to the APB Ethical Standards for Auditors and amendments to the FRC’s Guidance on Audit Committees, both of which are being published today.

As part of the consultation APB asked commentators whether there were any other views that they would like to be taken into account and has also held discussions with the FRC’s Audit Inspection Unit on their findings from audit inspections. As a result, APB is now consulting on three particular issues relating to the provision of non-audit services by auditors (restructuring services, contingent fees and conflicts of interest).

Richard Fleck, Chairman of APB commented:

“The consultation process was extremely worthwhile as it increased the general understanding of the reasons why there are concerns about auditors providing non-audit services to the entities they audit and the impact this has on the perception of auditor independence. We welcome the fact that a common view emerged from all constituencies as to how to address these concerns, namely through improved transparency and governance.

APB remains conscious of the effect that the provision of non-audit services by auditors has on confidence in auditor objectivity and independence and we will monitor the effectiveness of our proposals and continue to respond to other issues that may arise.

We are also consulting on whether to prohibit auditors from providing restructuring services to listed companies in distress, to prohibit auditors from providing any non-audit services on a contingent fee basis and to extend the threats and safeguards approach to non-audit services provided to an audited entity’s connected parties.”

Baroness Hogg, FRC Chairman, said:

“There remains concern that substantial provision by audit firms of other services to the companies they audit may pose a threat to their independence. We believe that audit committees can help by having a clear framework for assessing when it would be appropriate for the auditor to provide other services, and are consulting about how to make this more transparent.”

A copy of the APB’s Feedback and Consultation Paper (incorporating as an Appendix, the FRC’s Consultation Paper) may be downloaded free of charge from the publications section of the APB’s web site (http://www.frc.org.uk/apb/publications/exposure.cfm). A copy of the FRC’s Consultation Paper may be downloaded free of charge from the FRC web site (http://www.frc.org.uk/publications/pubs.cfm?mode=list&year=2010).
 

1. The FRC is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:
   • establish high standards of auditing;
      
   • meet the developing needs of users of financial information; and
      
   • ensure public confidence in auditing. 
3. The FRC Guidance on Audit Committees is designed to assist company boards in making suitable arrangements for their audit committees, and to assist directors serving on audit committees in carrying out their role, as set out in the UK Corporate Governance Code. The Guidance was last revised in 2008.
4. Media enquiries should be directed to:
   • Jonathan Labrey (Head of Communications, FRC) on 020 7492 2395 or 07760 990345, e-mail: j.labrey@frc.org.uk; or
   • in relation to the APB’s Feedback and Consultation Paper, Marek Grabowski (Executive Director, APB) on 020 7492 2325, e-mail: m.grabowski@frc-apb.org.uk or Richard Fleck (Chairman, APB) on 07785 350226; or
   • in relation to the FRC’s Consultation, Chris Hodge (Head of Corporate Governance) on 020 7492 2381, e-mail: c.hodge@frc.org.uk.