The Auditing Practice Board has published 137 responses to its consultation on audit firms providing non-audit services to listed companies that they audit. A consistent theme in may of the responses is a call for further transparency in disclosures in accounts of listed companies in relation to the non-audit work undertaken by the auditor. While the governance framework is considered appropriate by many of the respondents, investor responses highlight specific areas of concern – particularly where auditors provide any of internal audit, executive remuneration or restructuring services to distressed companies.


Petropavlovsk were among those companies who suggested that further rules in the area are unnecessary, “and would be damaging as they would remove the vital and necessary flexibility that companies like Petropavlovsk must have to use their auditors, where appropriate, to perform ‘non-audit’ services”. They cited fears of increase in choice and costs, and stated that they did not believe that the provision of non-audit services at sensible levels did  have any impact on stakeholder confidence in the auditors.

Rentokil Initial, which in August 2009 announced that it intended to use KPMG for both internal and external audit, did not explicitly address this matter in their consultation response. They state that the board and audit committee “would not welcome a reduction in the company’s flexibility to procure best value services to support the company’s business”. Its board does however acknowledge a benefit to clearer guidance relating to the disclosure of information regarding non-audit services in the published accounts.

The Chief Financial Officer and Audit Committee Chairman of Legal & General, in their submission contend that the real problem is one of perception by the press and politicians rather than by institutional investors, and suggest that improved disclosure rather than the introduction of further restrictions as a better way of dealing with the issue.

Accounting Firms

PricewaterhouseCoopers focused on the need for enhanced disclosure in the report and accounts to explain more clearly the principles that audit committees apply in deciding whether the auditor should provide non-audit services. PwC “do not believe that further changes are required and strongly supports the threats and safeguard principles established in UK Ethical Standards”. A joint submission by Baker Tilly and Haines Watts contends that if the contribution made by the UK’s governance framework “not only to addressing conflict of interest but also to total audit quality were better known to investors, the misperceptions we have referred to would, in our view, be defused. The investor community is commonly remote from the engineering of the profession and from the very entities in which they have an interest”. They consider that the current Ethical Standards “(an the governance framework that gives effect to them in the round) are a paradigm for clear, transparent , proportionate, evidence-based regulation that underpins an important aspect of the UK economy and simultaneously protects stakeholders of every hue”.


Standard Life acknowledge that there are instances where engaging the auditor for non-audit services is advantageous to the company and its shareholders. It supports “greater granularity” in disclosure within the statutory accounts of the remuneration paid to a company’s auditor for non-audit services. It does however believe that the “disaggregation of remuneration advice from the other functions of the auditing profession would … enhance confidence”, citing the clear linkage between remuneration outcomes and audited company results and the risk of undermining confidence in the external audit process overall.

Hermes are also “largely content with the framework” but suggest the tightening of rules in two areas. They propose that restructuring services provided to companies in distress should be moved into the category of non-audit services which are prohibited. They flag concerns over the provision of internal audit services by the auditor and note that “there will always be a perception among investors of an increased risk of a management threat from the provision of internal audit services” and call for tighter guidance in this area.

The NAPF note a “considerable lack of clarity about what constitutes a non-audit service” and advocates increased transparency. the IMA also refer to the Rentokil Initial case, and “are concerned that this could mean that Rentokil’s auditors are in effect auditing their own internal work and taking on management functions”.

Further Reading

Consultation responses >>

Last Updated: 16 March 2010
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