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The impact of changes to the non audit services regime on finance directors, audit committee chairs and audit partners of UK listed companies

Research output: Book/ReportBook

  • Tony Hines
  • V. Beattie
  • Stella Fearnley
The banking crisis in the UK has resulted in the re-examination of many aspects of the regulation and reporting associated with the UK banking and financial services sector, including the role of auditors. In 2009 the House of Commons Treasury Committee reported that the Committee had received very little evidence that ‘auditors failed to fulfil their duties as currently stipulated’ (House of Commons Treasury Committee, 2009, p. 77). The Committee, however, reviewed the UK’s auditor independence regime, which was significantly strengthened after the Enron scandal and the collapse of the audit firm Andersen in 2002. The changed regime introduced widespread restrictions but not a total ban on the provision of non-audit services (NAS). The Treasury Committee expressed the belief that ‘investor confidence and trust in audit would be enhanced by a prohibition on audit firms conducting non-audit work for the same company’ and recommended that the Financial Reporting Council (FRC) should consult on this proposal at the earliest opportunity (House of Commons Treasury Committee, 2009, p. 84). Although the Committee was focussed on the banking crisis, the proposal to prohibit all NAS could apply to all companies and auditors, not just to the banking sector. The Auditing Practices Board (APB), which is part of the FRC, issued a consultation in October 2009, which focuses primarily on NAS for listed companies (APB, 2009 p3). This briefing focuses on the impact of the post Enron regulatory changes to the NAS regime on companies and auditors, principally by reporting relevant findings from a wide ranging experiential questionnaire study which we carried out in 2007. The questionnaire sought views and experiences from finance directors (FDs), audit committee chairs (ACCs) and audit engagement partners (APs) of UK listed companies on recent regulatory changes including restrictions on NAS provision. This briefing provides direct evidence of how the changes to the NAS regime affected key parties actually engaged with the financial reporting and audit process before the economic downturn. There has been no significant change to this regime since 2007 and therefore these results are relevant to the current environment. We first summarise the key changes to the NAS regime introduced from 2002 onwards and briefly review findings in relevant academic studies. We then provide evidence of changes to NAS fee levels since 2002 and then we report relevant findings of the 2007 experiential survey. Our conclusions on the evidence follow.
Original languageEnglish
Place of PublicationLondon
PublisherInstitute of Chartered Accountants in England and Wales
Number of pages24
ISBN (Print)9781841528526
Publication statusPublished - 2009

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