PracticeConsultingAudit ban on secretive clients

Audit ban on secretive clients

Auditing Practices Board steps in to prevent accountants taking on or retaining directors who try to limit the scope of their audit.

Accountants have been banned from taking on audit clients who try to impose restrictions on the scope of an audit.

The move by the Auditing Practices Board stems from concerns about the audits of offshore companies. In some cases, directors have been imposing limitations on what the auditors could do. APB chairman Ian Plaistowe said: ‘For auditors to accept appointment on the understanding that certain audit work will not be performed – and that they are only expected to issue a report containing a disclaimer of opinion – threatens public confidence and is a matter of serious concern to the APB.’

The revised rules are embodied in a new standard, SAS 601, entitled ‘Imposed Limitation of Audit Scope’, and will take effect from the beginning of June. APB officials first announced the new rules in a discussion draft issued last November.

Last week, Plaistowe roundly condemned audits where limitations had been imposed by company directors. ‘These are audits in name only,’ he said.

‘This new standard puts the auditors’ position beyond doubt – such engagements should not be accepted.’

Two basic rules are laid out in the standard. If auditors become aware before accepting an audit that directors will impose a limitation on its scope, they should not accept it.

If they become aware of a limitation after they have already taken on the client, they should request that the restriction be dropped. Failing that, the auditor should consider resigning.

‘Agreeing such a restriction … would seriously threaten the auditors’ independence,’ according to the standard.

But if the auditors consider it appropriate for them to continue – for example where a third party is involved – then they can retain the audit contract, as long as they include a full explanation of the events that led to the disclaimer in their report.

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