22 October, 2020 – Auditor independence is vital to public trust in audited financial statements, and contributes to audit quality. In recent years, audit firms’ provision of non-assurance services to audit clients has come up as an issue that is perceived to affect auditor independence.
There is diversity regarding the interpretation and application of non-assurance services and fee-related provisions in ISCA’s EP 100 Code of Professional Conduct and Ethics. It is also unclear what information those charged with governance considered relevant when assessing the independence of audit firms. To gain greater clarity on this, ISCA’s Ethics Committee set up a working group to formulate recommended practices that will strengthen auditor independence in relation to the provision of non-assurance services.
ISCA invited approximately 400 audit committee members to participate in the online survey to share their views regarding the recommendations as well as matters which impact auditor independence when offering non-assurance services. This inaugural survey had a response rate of 10 percent and the findings were unveiled at ISCA’s Practitioners Conference on 22 October, 2020.
ISCA’s Chief Executive Officer, Mr Lee Fook Chiew, said: “The survey findings show that audit committee members of Singapore companies are supportive of ISCA’s recommendations to strengthen auditor independence in relation to the provision of non-assurance services. We will take the feedback into consideration when we work on enhancing the non-assurance services and fee-related provisions in ISCA’s Code of Professional Conduct and Ethics to address the diversity in the interpretation and application of such provisions.”
Approval should be obtained from those charged with governance before the audit firm can be appointed to carry out non-assurance services.
Close to 70 percent of the respondents supported the recommendation to obtain approval from those charged with governance before the audit firm and its network firms can be appointed to deliver non-assurance services. This recommendation will allow more timely review by those charged with governance regarding the independence of the auditors. Currently, auditors can provide non-assurance services (subject to those which are prohibited by EP 100) without the need to seek-approval from those charged with governance. Auditors only need to disclose to those charged with governance if the fees for non-assurance services provided exceed more than 50 percent of the audit fees.
92 percent of the respondents agree that information on non-assurance services provided by the audit firm’s network firms to the audit client’s parent and sister companies is important.
There are concerns among users of financial statements that non-assurance services provided by auditors in the same network could affect the independence of the audit firm who is opining on the financial statements. However, in practice, it is difficult for an audit firm to obtain such information.
To address this, ISCA recommended that the audit firm obtain confirmation from each network firm, that the fees for non-assurance services earned by the network firm from each of the audit client’s parent and sister companies do not exceed one percent of the network firm’s revenue. If the amount exceeds one percent, the audit firm is to apply safeguards by providing those charged with governance either a confirmation from (i) the audit firm that there is no undue influence from network firms on the audit firm for the execution of audit; or (ii) the audit firm’s ethics and independence partner (or equivalent) that there is no undue influence from network firms on the audit firm for its execution of audit. More than 90 percent of the respondents agreed with this recommendation.
The concept of “audit-related services” is proposed, to narrow the scope of non-assurance services
The scope of non-assurance services under the current EP 100 Code of Professional Conduct and Ethics is perceived to be too wide as it covers all services other than audit and review engagements.
To address this, ISCA recommends developing the concept of “audit-related services”, which refers to non-assurance services that are closely related to the work performed in an audit and which is carried out by the audit engagement team. Such “audit-related services” would be excluded from the computation of the proportion of non-assurance services to audit fee, to better reflect the non-assurance services that could potentially affect auditor independence. 100 percent of respondents agreed with this recommendation.
ISCA has highlighted the key recommendations to the International Ethics Standards Board for Accountants (IESBA) for consideration in its revision of the International Code of Ethics for Professional Accountants. The IESBA is an independent standard-setting board that develops, in the public interest, high-quality ethical standards and other pronouncements for professional accountants worldwide.
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About the Institute of Singapore Chartered Accountants
The Institute of Singapore Chartered Accountants (ISCA) is the national accountancy body of Singapore. ISCA’s vision is to be a globally recognised professional accountancy body, bringing value to our members, the profession and wider community. There are over 32,000 ISCA members making their stride in businesses across industries in Singapore and around the world.
Established in 1963, ISCA is an advocate of the interests of the profession. Possessing a Global Mindset, with Asian Insights, ISCA leverages its regional expertise, knowledge, and networks with diverse stakeholders to contribute towards Singapore’s transformation into a global accountancy hub. ISCA is the Designated Entity to confer the Chartered Accountant of Singapore – CA (Singapore) - designation. ISCA is a member of Chartered Accountants Worldwide, a global family that brings together the members of leading institutes to create a community of over 1.8 million Chartered Accountants and students in more than 190 countries.
For more information, visit www.isca.org.sg.