Non-audit fees given all clear

A report into the quality of auditing at the Big Four firms has found no
evidence that non-audit fees compromise the quality of auditing.

The Professional Oversight Board for Accountancy issued the findings this
week of its first investigation into auditing at the Big Four. It uncovered no
evidence that the widely criticised practice of firms undertaking audit and
non-audit work for the same company compromised the quality of audits.

Andrew Jones, head of the audit inspection unit, said: ‘We looked at a range
of audits and had varying degrees of concern.

‘Some were done very well. Of those which were done less well, one could not
say that was because of apparent conflicts of interest [over non-audit fees].’

The report is the first major probe of audit practices at the Big Four firms,
and the lack of any conflicts over non-audit fees will come as a relief to many
in the profession. But the report also highlighted several areas of concern.

Of the 27 analysed, two companies have been referred to the Financial
Reporting Review Panel in relation to POBA’s report, though the watchdog
stressed that the issues did not relate to the reporting of profits.

POBA identified problems with ‘engagement’ partners ­ audit partners who stay
on the audits of particular companies for five years at a time. POBA suggested
such partners often stayed for longer than they should, raising the possibility
that new engagement partners could be unduly influenced by their presence.

POBA chairman Sir John Bourn said: ‘The finance director says: “the new audit
partner doesn’t quite understand what we’re all about. Would you have a word
with him?” This is the kind of thing that diminishes independence.’

Auditors should provide more documentation about what they were doing, POBA
said, and partners were often selected because of their ability to win new
business, rather than their accuracy on audits, it added.

POBA made 21 recommendations, which it expects to be implemented
by the time it returns to the issue again next year.

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