FRC urges caution on Rentokil-style audits

The financial reporting regulator has urged caution if companies are
considering taking on Rentokil-style internal/external audit arrangement which
are being investigated by ethical standard setters.

Paul Boyle, chief executive of the Financial Reporting Council, said
companies should not rush into controversial audit arrangements which have the
potential to blur the line between internal and external audit services.

The controversial service hit the headlines after FTSE 100 firm Rentokil
boasted of a 30% cut in audit cost after switching to big four auditor KPMG
which promoted a new low cost external audit package which provided some
services which usually undertaken by an internal audit.

The arrangement would be forbidden in the US and possibly in France where
authorities prohibit external auditors undertaking internal audit work.

Boyle said the FRC would examine the scheme, and possibly alter ethical
guidelines if needed.

“The FRC believes it is important that audit firms and their clients should
be aware of the steps being taken and may want to be cautious before entering
into arrangements which stretch the internal/external audit boundary, not least
because it could prove to be inconvenient and/or costly to change such
arrangements should the outcome of the FRC’s work be that the Ethical Standards
are changed in a way that affects the provision of such services,” Boyle said.

In this week’s Accountancy Age Kevin Chidwick, Admiral Group’s FD said he was
interested in the arrangement and had contacted KPMG to find out more.

“If they can add value to what we’re doing and overall it somehow [can be]
combined to keep down external audit costs, I’m all for it,” he said.

Read the full story:
FRC advises
caution on internal/external audit boundary

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