PracticeAuditReform hit by human rights risk

Reform hit by human rights risk

Plans to introduce a two-year 'cooling-off' period for auditors who want to join clients could fall foul of the Human Rights Act, the ICAEW has admitted.

The admission came as the institute’s council was expected to agree changes to its auditor independence rules which included the introduction the two-year ban from joining clients for key audit partners.

Peter Wyman, incoming ICAEW president and a supporter of the ban, told Accountancy Age: ‘We looked at the Human Rights Act very carefully and there may well be a problem.’

A compulsory cooling-off period could be seen as an infringement of employment rights and would effectively kill off the movement of auditors from their firm to a client – few companies would be willing to wait two years before employing an auditor.

Wyman said the solution would require a company to change audit firm, an idea that was unlikely to find favour among either the firms or their clients.

‘At the end of the day, a company will have a straight choice,’ Wyman said.

Auditors jumping from their firm to a client fell under the spotlight during the Enron scandal when it emerged a number of Andersen employees had joined the failed energy trader, leading to accusations that the audit firm’s independence had been compromised.

Other proposals presented at yesterday’s meeting of the institute’s council included a tightening of the rules on audit partner rotation – the current seven-year period will be widened to include time spent auditing a company’s subsidiaries.

Wyman also called for an increase in transparency across the profession – in particular he insisted audit firms should publish details of their own governance structures as well as key financial data.

He added the role and work of company audit committees needed to be more transparent, including disclosure of its discussions with it auditors.

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