Within the 10 years since the Enron collapse, the auditors are now getting back their way for fat fees, the Financial Reporting Council has warned the largest firms of auditors (especially the Big Four: PwC, KPMG, Deloitte and Ernst & Young) that they should not be doing internal audit work for clients whose accounts they sign off in the annual statutory external audit.
Recently the FRC, the regulator of Britain's accountants, appears to be pointing finger at KPMG as there might have a breaching of ethical standards upon getting new audit client, Rentokil Initial.
Auditors should not be facing serious conflict of interest while auditing the client. By offering advice on or running client internal audit services will be marked as 'extended assurance services'. This extended assurance services is should be avoided if possible because auditors supposedly to have independent when verifying a company's financial reports. But when auditors are auditing their own work, that is not showing independent!The FRC is warning firms its Auditing Practices Board arm and the disciplinary body, the Public Oversight Board, are looking at a clampdown on ethical guidelines.
The APB is consulting on whether internal audit engagements or 'similarly constructed packages of services' comply with the principles of its ethical standards rule book.
The issue has come to a head after KPMG won a contract with Rentokil by promoting a new audit package which provided some services which would normally have been undertaken by Rentokil employees in the internal audit function. Such a package is banned in the US.
After news of the Rentokil arrangement broke in the summer KPMG's head of audit Oliver Tant boasted he had received 'phenomenal' interest from companies looking for 'extended assurance'.
The issue of accountants using the audit to win a client who they can then milk for huge fees for additional work was raised by MPs on the Treasury Select Committee as part of their investigation of the banking crisis.
Industry figures show auditors still earn another 70% of their audit billings from additional work for clients despite the Enron clampdown on such relationships.
Pre-Enron, auditors on average earned twice as much in non-audit fees than from the audit.
Full written Article via Pass Magazine
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Auditors face the biggest crackdown since Enron
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