UK auditors face possible ban on some non-audit work

By Reuters Staff
October 6, 2009

LONDON, Oct 6 (Reuters) – Auditors in Britain may be banned from offering consultancy and other non-audit services to firms whose books they check, a UK watchdog said on Tuesday.

The Financial Reporting Council made the comment when launching a consultation on a recommendation from parliament’s treasury committee.

The committee said investor confidence and trust in auditing would be enhanced by a prohibition on audit firms conducting non-audit work for the same company.

Such work can include due diligence on a takeover target, design of technology systems, actuarial services and management consulting.

The worry for some policymakers is that auditors may be tempted to give favourable opinions on a company it hoped to win other business from, creating conflicts of interest.

The Enron energy trading scandal in the United States in 2002 highlighted the perils of auditors becoming too entwined with clients, and led to the demise of Arthur Andersen.

In Britain company audit committees since then have been required to monitor non-audit services.

Allister Wilson, senior audit partner at Ernst & Young, said existing FRC guidelines already strike the right balance between non-audit services that can be allowed and those that should be prohibited.

“A complete ban would be totally counter productive. It would not be in the interests of shareholders or companies,” Wilson said.

Auditors already avoid services that involve taking “management” decisions such as IT systems, Wilson added.

The FRC said revenue from non-audit services has already gone down in recent years.

The FRC’s Audit Practices Board also issued a new standard that will allow companies to continue using the same audit partner for seven years, two years longer than at present, but only under exceptional circumstances.

This follows pressure from auditors and companies for a more flexible approach. There is still no requirement to rotate the actual audit firm.
(Reporting by Huw Jones, editing by Will Waterman) ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))

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