Audit standards: the APB has bigger fish to fry

The Auditing Practices Board will shortly issue an exposure draft of its
proposed revised ethical standards for auditors.

When the APB unveiled its original set of proposals in 2004, they attracted a
great deal of controversy. ICAS’s audit and assurance committee recently
published research into the impact of the APB’s standards, which involved
interviews with senior figures as well as questionnaires sent to audit firms and

On the plus side, the results show there is little doubt among businesses
that the standards, at the very least, have improved the ethical image of
auditors. This is good news for the APB ­ it was tasked with introducing these
standards in the aftermath of the accounting scandals at the start of the decade
and it is also good news for the profession and business in general.

However, the smaller firms surveyed highlighted the additional cost burden
that they have had to bear since the standards were introduced. This presents a
dilemma to resolve so that the correct balance is maintained between the
auditor’s perceived independence and that the client receives the best all-round
business service.

Recognising this issue at the outset, the APB published an additional ethical
standard ‘Provisions Available for Small Entities’ (PASE), which allowed certain
alternative provisions and exemptions to the auditors of smaller entities. Many
smaller firms have applied this standard and its use does not appear to have
tainted the value of smaller audits, despite the auditor having to disclose
specific information in relation to the alternative provisions or exemptions for
which it has applied.

The question, therefore, is whether the applicability of the PASE could be
widened to include other larger entities. My own view is that the scope of the
PASE could be widened to include owner-managed businesses up to the Companies
Act threshold for medium-sized companies. This would also help to allow smaller
firms to remain in the audit market as they undoubtedly face a difficult task in
ensuring compliance with the full range of the APB’s ethical standards.

There is much attention focused on the level of competition at the FTSE 100
level, but the need to ensure that there are not unnecessary barriers to
competition in the SME market must not be overlooked.

James Barbour is director of accounting and auditing at

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