Revised Ethical Standards for auditors
The Financial Reporting Council (FRC) issued the revised Ethical Standard 2016 which applies to audit engagements from 17 June 2016; accordingly you will start to be affected by changes it heralded in forthcoming audit assignments.
The revised Standard is intended to strengthen the independence of audits. It applies further prohibitions to a range of services on audit engagements that could give rise to potential conflicts of interest for auditors.
There are some changes that will affect all statutory audits. For example, auditors now need to consider their independence from the perspective of an “objective, reasonable and informed third party.” If such a third party considers that any proposed actions may compromise the independence of the firm, the auditor must not take on such services or must not undertake the audit engagement. This ‘reasonable and informed third party’ test strengthens the requirement ‘to be seen’ to be independent in order to carry out audit engagements.
The major changes from the former Ethical Standards are in relation to Public Interest Entities (PIEs). For example, the changes prohibit certain non-audit services, additional reporting to audit committees and set a non-audit fee cap of no more than 70% of the audit fee on a rolling three year basis. However, as the definition of PIEs are unlikely to include charities and other nNot for pProfit entities, these more major changes reflecting changes in the EU Audit and Regulation Directive, will not affect the sector.
For more information, contact Sudhir Singh, Partner & Head of Not for Profit