Finance News: New auditor rules in need of a rewrite, says Directors' group

Mathew Little

The Charity Finance Directors' Group has said that new rules on auditor independence could lead to a perception that small and medium-sized charities will receive "second class audits".

The umbrella body wants new mandatory guidelines from the Auditing Practices Board re-written so that the assurance given by charity audits is not "devalued".

Under new ethical standards, developed in the wake of the Enron scandal, auditors will be restricted in the kind of additional consultation services they can sell to companies or charities.

The auditors of companies or charities will not be allowed to provide services involving a "management role", such as deciding on accounting policies, handling cash or making employment decisions.

But charities with income below £5.6m will be exempt from provisions that also stop auditors preparing and auditing accounts without oversight from "informed management".

However, they will be obliged to disclose the exemption in their audit report.

Sophie Chapman, policy and campaigns officer, said such a disclosure was unnecessary: "We fully support the need for auditor independence and we welcome the exemptions being made available for small charities, but we fear that the manner in which the exemptions have been framed could lead to a perception of second class audits," she commented.

Jon Grant, executive director of the Auditing Practices Board, said "many commentators were of this view and the board was actively reconsidering its position" on the issue.

The CFDG also said it was concerned that the exemption would only last three years. Grant denied that the board was proposing to limit the life of the exemptions, but said that it wanted to review whether audits, as opposed to rigorous independent examinations, were the right form of assessment for smaller charities.

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