Changes reflect the revised “Ethical Standards for Auditors” published in December 2010
UPDATE 19 September 2011: The new Regulations will come into force on 1 October 2011, as we discuss in this post.
The Department of Business, Innovation and Skills last week published draft amendments (the Amendments) to the Companies (Disclosure of Auditors Remuneration and Liability Limitation Agreements) Regulations 2008 (the Existing Regulations). The Amendments are here and the explanatory text is here.
The Existing Regulations require that the accounts of large companies disclose any remuneration receivable by the company’s auditor in respects of certain kinds of non-audit work, in addition to the remuneration received by the auditor for audit work. The purpose of this disclosure is to provide transparency as to the amount of fees received by a company’s auditor in relation to non-audit work, because of the possible conflict of interest between the auditor’s duties in performing the statutory audit and the auditor’s desire to earn fees from other services provided to the company.
A large company for these purposes is any company that is not a small or medium-sized company. The concepts of “small” and “medium-sized” companies are defined in Chapter 1 and 2 of Part 15 of the Companies Act 2006.
The Ethical Standards for Auditors
The Auditing Practices Board tightened its Ethical Standards for Auditors in December 2010, saying that the new standards “represent a significant tightening of the requirements in relation to the provision of non-audit services by auditors and introduce a new approach designed to address investors’ perception concerns through greater transparency”. The Amendments are designed to reflect this tightening by amending the underlying legislation.
The Amendments
Under the draft Companies (Disclosure of Auditors Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011, large companies will have to state in a note to their annual accounts the remuneration receivable by the company’s auditor in relation to each of the following types of service provided to the company:
- The auditing of accounts of any associate of the company.
- Audit related assurance services.
- All other assurance services not identified in paragraph 1 or 2.
- Taxation compliance services.
- All other taxation advisory services not identified in paragraph 4.
- Internal audit services.
- Services relating to a transaction entered into, or proposed to be entered into, by or on behalf of, the company or any of its associates for which a circular, prospectus or listing particulars is required to be produced.
- Services relating to corporate finance transactions entered into, or proposed to be entered into, by or on behalf of the company.
- All other non-audit services not identified in paragraphs 6 to 8.
The Amendments are currently out for consultation. The expected commencement date is 1 October 2011.
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