Non-audit work needs greater transparency, not more legislation

Greater transparency, but no hard and fast rule changes are
what The Hundred Group of Finance Directors calls for in the Audit Practices
Board’s (APB) review of rules around auditors providing their clients with
non-audit services. And that’s in line with what the majority of other
respondents have written.

In a letter to the APB Peter Williams, FD at the Daily Mail Group Trust,
outlines that “we see no need to alter the current approach to using auditors to
perform non-audit work”. He says stringent processes that companies undertook
before permitting auditors to embark on the additional work and that due to such
“rigorous” processes, there is no threat to independence.

But he did say that the conclusions of the Treasury Select Committee’s work
on this should not be ignored and “to counteract any remaining perceived threat,
more could be done to communicate the processes operating within companies,
which non-audit services the auditors have performed and why the audit committee
is satisfied that the auditors remain independent”.

Independence defended
There has been a significant backlash to the APB’s summation that a firm’s
independence could be undermined by substantial revenue received from non-audit
work undertaken for audit clients.

Williams disputes this, arguing that for certain transactional work, the
auditor is often the best choice for shareholders, due to “familiarity with the
company, which enables the auditor to mobilise far quicker. Their understanding
of company-specific issues is invaluable in assisting with certain aspects of
diligence,” he says.

In many cases he argues auditors are not just employed solely to conduct
non-audit work. “Decisions to use the auditor are not taken lightly in these
circumstances. Decisions are taken based on a range of criteria, such as which
firm is best placed to perform the work and whether any firm is conflicted or
the service threatens independence.”

According to Benito Arrunada, author of the International Review of Law and
Economics, provision of non-audit services by auditors to their audit clients
reduces total costs, increases technical competence and motivates more intense
competition. Furthermore, he adds, these services do not necessarily damage
auditor independence nor the quality of non-audit services.

Williams thinks the international aspect of any prohibition cannot be
ignored. Any subsequent ban on non-audit work by auditors, he warns, would “be
unique ­ and may have an impact on the competitive position of UK companies”.