Auditors and consultants: revisiting an old audit chestnut

In that first issue, members of the Management Consultancies Association
complained that firms should not be able to work as auditors and consultants, an
opinion that has never gone away, although ironically some of the most senior
members of the MCA are the Big Four.

Now, the Auditing Practices Board is revisiting this old chestnut. Concerned
at the way in which it saw the selling of non-audit work to an audit client,
during its review of the UK’s biggest auditors in December, the APB has set out
to tighten up procedures. ‘Key partners’ in an audit could be barred from
selling on non-audit services, which is understandable, if clunkily worded, in
its consultation.

Strangely, the APB suggests relaxing a key rule. Key audit partners should be
allowed to stay on at a client for seven years, rather than the recommended five
in specialised sectors such as banking. ‘A five-year rotation period can create
difficulties in practice for audit firms, particularly in the provision of audit
services to specialised industries such as banks and insurance companies,’ the
APB notes.

There are arguments for and against longer spells. Complex audits require
deep industry and company knowledge, so shifting people around means things can
be easily hidden.

But in this financial climate, where auditors are being probed over their
role in the banking debacle, giving out a message that could be interpreted as
allowing auditors to stay cosy for a couple more years with their client is
controversial. Some might argue the real issue is whether to shorten the tenure
for an audit firm itself to work with a client.

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