The Financial Reporting Council (FRC) is to prohibit the use of internal audit staff as 'direct assistance' members of external audit teams, in a move designed to safeguard against conflicts of interest.
The FRC said creating a clearer division of responsibility between internal and external audit teams will promote greater confidence in the integrity of the audit for investors. The prohibition comes into effect for audits of financial statements for periods ending on or after 15 June 2014.
Nick Land, FRC board member and chairman of the audit and assurance council, said: 'Prohibiting direct assistance supports stakeholders' expectation that external auditors should be free from threats to their independence. In determining the effective date of the prohibition, the FRC has taken into consideration that planning the use of the work of internal auditors may take place early in the financial period being reported on.'
The new standard goes beyond the requirements of the International Auditing and Assurance Standards Board (IAASB) standard ISA 610 (Revised), but the FRC said the prohibition on direct assistance did not represent a divergence as IAASB makes clear that its requirements and guidance in this area will not be applicable in jurisdictions where direct assistance is prohibited.
Hywel Ball, head of assurance, UK & Ireland at Ernst & Young, described restricted direct assistance, rather than an outright ban, as a 'reasonably common feature of current external audit practice' and said there was no indication that it impaired audit quality.
Commenting on the FRC's announcement, Ball said: 'Introducing this prohibition now will add complexity to the planning of multi-location audits - for example direct assistance being permitted for the performance of PCAOB audits on UK components, but not permitted for the audit of the component's UK statutory accounts.'
Other revisions to the FRC's auditing and ethical standards to reflect the revised international auditing standards on the external auditor's use of work carried out by internal audit will also have the same effective date.
