Ward in audit fight.

Graham Ward, president of the English ICA, has hit out against the US Security Exchange Commission’s proposals for auditor independence.

Testifying at SEC hearings in New York this week, Ward argued that forcing UK audit firms with client companies listed in the US to comply with detailed rules would be ‘counter-productive’.

He said the UK ‘framework approach’, which sets out fundamental ethical principles backed by professional education and enforcement, was in practice more rigorous than the US rule-based approach.

The second public hearing was called to debate the SEC’s proposals on auditor independence. Chaired by Arthur Levitt, the SEC is seeking to update the requirements governing auditors’ investments in clients and the scope of services provided to audit clients.

Ward said: ‘There is no evidence that the provision of non-audit services has resulted in a decline in the quality of the audit. Seeking to enforce internationally a rule-based approach designed for the US economy and US domestic law would do little to achieve high quality and objective auditing throughout the world.’

At the hearing, Ward claimed the UK framework approach had the advantage of preventing narrow legalistic interpretations circumventing independence requirements. In the UK, he argued, the English ICA required members to comply with the spirit of its guide, as well as the terms, so that if conduct was not on a list it could still amount to misconduct.

He said the institute believed auditors should not be put in the position of having to audit a significant component of the financial statements to which they were linked. He maintained that by trying to prohibit some advisory services while allowing others, the SEC proposals contained arbitrary distinctions that would not stand the test of time.

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