There is no benefit to be gained from a complete prohibition on auditors providing non-audit services to their listed clients.
That’s the view of a new research paper published 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.
Instead, the audit committees of listed companies should:
- Make public, clear and detailed information to explain to shareholders, how decisions regarding the provision of non-audit services by the company’s external auditor are made, and their process for ensuring the independence of the auditor; and
- Provide more consistent and higher quality of disclosure in the financial statements of the quantity and nature of the non-audit services provided.
The Working Group comprised representatives from the investment community, the FTSE 100, audit firms and academia. Its conclusions were 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.”