Last week the Department of Trade announced that it had rejected industry pleas for a cap on auditors’ liability, and opened the door to proportional liability by contract.
But in a Commons debate Jim Cousins, Labour MP and member of the Treasury select committee, questioned whether trade minister, Jacqui Smith, had ‘closed her mind to a statutory provision on the separation of audit and non-audit services’.
Smith refused to rule it out saying: ‘We have not closed our minds to anything that helps us to improve confidence in both financial reporting and the quality of audit.’
In what could be one of the most important weeks for the future of the UK audit profession, the DTI also launched a consultation on the European standards for statutory audit.
‘The government supports many of the commission’s proposals, especially those addressing auditor independence and independent monitoring and public oversight,’ said Smith.
The proposals in question are the European Union’s response to financial scandals such as Enron, WorldCom and Parmalat. While a statutory ban on firms doing non-audit work for their audit clients has not been proposed, the EU has recommended several changes to the status quo.
These include the introduction of an annual transparency report for audit firms; rotation of auditors; the introduction of audit quality reviews; an updated education programme for auditors; rules that ensure firms are not able to ‘low-ball’ on audit fees; and common rules for the appointment and resignation of audit firms.
Stephen Haddrill, director general of fair markets at the DTI, said the department ‘supports many of the commission’s proposals, especially those addressing auditor independence and independent monitoring and public oversight’.
But the DTI, Haddrill explains in the consultation, continues to press ‘for a better balance between principles and detailed rules’.
The government is seeking views on the new proposals. ‘We want further input from the industry in order to ensure the proposals are workable and meet their aims without putting unnecessary burdens on the industry,’ said Smith.
Consultation on the new draft directive finishes on 30 November. Copies of the consultation can be downloaded from www.dti.gov.uk/consultations.
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