Tighter ethical standards for audit on the way in UK

Auditors in the UK face tougher ethical standards in the wake of a review of their code of conduct. Revisions by the Audit Practices Board came in response to the financial crisis and its aftermath, in which clean audit reports were followed by rapid collapses of banks and other financial institutions. One focus of the changes is on the level and nature of non-audit work that the audit firms undertake for clients. "Respondents to the APB's consultations on its Ethical Standards indicated that a total prohibition was not appropriate but acknowledged that there can be a perception of a loss of independence where certain non-audit services are provided by the auditor," the APB said. "This is heightened where the ratio of non-audit fees to audit fees is high."

The APB doesn't want to set in stone a formula for deciding when enough is too much. Instead, it lends moral force to the audit partner's control of the client relationship, rather than other members of the firm who might gain work from the client. In boldface type, it notes: "The audit firm shall establish policies and procedures that require others within the firm, when considering whether to accept a proposed engagement to provide a non-audit service to an audited entity or any of its affiliates, to communicate details of the proposed engagement to the audit engagement partner." The audit partner should then apply a "reasonable and informed third party" test, and then consider the likely risks to the firm's reputation, before assessing the safeguards in place to deal with those risks. Only then should the firm take on the work.

Source document: The news release has links to the documents.