Auditor impartiality undermined

Link: Joint audits could solve crisis

In the first evidence of its kind, a study by the Accountancy Foundation’s Review Board has revealed auditors believed their objectivity was compromised by factors which pointed to a clear need for reform.

Responding to questions by polling organisation MORI, 62% of auditors believed the need to win non-audit business had undermined their objectivity. Concern about losing an audit contract was cited by 64% as affecting impartiality while a massive 74% said close relationships with client managers was damaging.

The Review Board is currently engaged in a huge research exercise examining regulatory options involving non-audit services, audit firm rotation and the monitoring of audit firms as part of efforts to find ways of ensuring auditor independence.

Results from the research will be given direct to the government’s coordinating group on audit and accounting reform which will issue a consultation document early next year.

Colin Reeves, director of the Review Board, said: ‘The board has been undertaking studies to assist the coordinating group in reaching decisions on measures to strengthen auditor independence. The results of the attitudinal survey study justify this work.’

MORI research with clients also concluded audit impartiality was being undermined. An overwhelming 83% thought winning non-audit business affected auditor objectivity.

Peter Wyman, ICAEW president, said the evidence relating to fears of losing audit contracts highlighted concerns about ‘threats to the individual partner’, especially those towards the end of their careers and focused mainly on one client. He added that the institute was working with the Review Board on proposals for partner remuneration to deal with the risks posed by the need to win non-audit business.

Related reading