Recent changes to audit independence rules are forcing more businesses, particularly large private firms and listed companies, to use separate providers for audit and non-audit services, and often to find new providers for non-audit services.
The Financial Reporting Council, (“FRC”), has recently made significant revisions to its UK Ethical Standard and Auditing Standards and also effectively extended the definition of Public Interest Entities (“PIEs”) to a create a new class of companies called ‘Other Entities of Public Interest’ (“OEPIs”). These revisions could impact the extent to which non-audit services (including tax services, transaction related advice and accounting support) can be provided by your auditor.
We are seeing many large businesses choosing to separate their audit and non-audit services, even where no restrictions exist. In our view, the clear direction of travel for larger businesses is that audit and non-audit services will continue to be separated to ensure a more independent and robust audit. The OEPI definition is also expected to be broadened to capture an increased number of businesses, and a government consultation on this is expected by the end of the year.
Which non-audit services are impacted?
At Smith & Williamson we regularly advise large listed and privately owned businesses whose auditors are conflicted, or there are perceived independence concerns.