The Auditing Practices Board will shortly issue an exposure draft of its proposed revised ethical standards for auditors.

When the APB unveiled its original set of proposals in 2004, they attracted a great deal of controversy. ICAS’s audit and assurance committee recently published research into the impact of the APB’s standards, which involved interviews with senior figures as well as questionnaires sent to audit firms and businesses.

On the plus side, the results show there is little doubt among businesses that the standards, at the very least, have improved the ethical image of auditors. This is good news for the APB ­ it was tasked with introducing these standards in the aftermath of the accounting scandals at the start of the decade and it is also good news for the profession and business in general.

However, the smaller firms surveyed highlighted the additional cost burden that they have had to bear since the standards were introduced. This presents a dilemma to resolve so that the correct balance is maintained between the auditor’s perceived independence and that the client receives the best all-round business service.

Recognising this issue at the outset, the APB published an additional ethical standard ‘Provisions Available for Small Entities’ (PASE), which allowed certain alternative provisions and exemptions to the auditors of smaller entities. Many smaller firms have applied this standard and its use does not appear to have tainted the value of smaller audits, despite the auditor having to disclose specific information in relation to the alternative provisions or exemptions for which it has applied.

The question, therefore, is whether the applicability of the PASE could be widened to include other larger entities. My own view is that the scope of the PASE could be widened to include owner-managed businesses up to the Companies Act threshold for medium-sized companies. This would also help to allow smaller firms to remain in the audit market as they undoubtedly face a difficult task in ensuring compliance with the full range of the APB’s ethical standards.

There is much attention focused on the level of competition at the FTSE 100 level, but the need to ensure that there are not unnecessary barriers to competition in the SME market must not be overlooked.

James Barbour is director of accounting and auditing at ICAS