Question

Should accounting firms be permitted to provide lobbying or legislative advisory services to non-audit clients? why or why not? should accounting firms be permitted to lobby rule- making bodies regarding proposed account standards? Defend your answer

Answer 1

Non-audit services provided by auditors to their clients fall into three categories:

1. Services required by legislation or contract to be undertaken by the auditors of the business. These include:

• regulatory returns e.g. to the Prudential Regulation Authority
• legal requirements to report on matters such as share issues for non-cash consideration, expenditure for grant application purposes, etc
• contractual requirements, for example to report to lenders or vendors on net assets, covenant requirements, etc.

2. Services that it is most efficient for the auditors to provide because of their existing knowledge of the business, or because the information required is a by-product of the audit process. These include:

• services such as those listed in category (1) above that the auditors are not required by law to undertake, but where the information largely derives from the audited financial records
• tax compliance, where much of the information derives from the audited financial records
• 'short form' or other reports in acquisition or reorganisation situations where completion is necessary in a very short time.

3. Services that could be provided by a number of firms. In this case, the fact that the firm is the auditor is incidental and it would generally only be chosen because, for example, it had won a tender process. Examples of such services include:

• management consultancy
• tax advice
• human resources consultancy.

First, the Institute's ethical code forbids auditors to provide non-audit services to audit clients if that would present a threat to independence for which no adequate safeguards are available. In such circumstances, the firm must either resign as auditor or refuse to supply the non-audit services. The code includes examples of specific activities where no acceptable safeguards are available - for example the promotion of the shares of audit clients - which are therefore effectively prohibited.