FRC to Adopt Improved Auditing Standards on Using the Work of Internal Audit
The UK Financial Reporting Council (FRC) has confirmed it will adopt the proposed international improvements to the auditing standards on the external auditor using the work of internal audit. In doing so, subject to consulting on the timing of implementation, it will rule out the direct use of internal audit staff as members of audit engagement teams, with the aim of preserving auditor independence.
The FRC said the improvements reflect changes to the International Auditing and Assurance Standards Board’s (IAASB) international standards on auditing, the aim of which was to:
Prior to these revisions, the IAASB’s standards were not explicit about whether or not direct assistance by internal audit staff was permitted.
The FRC said that its own standards included additional guidance that allowed direct assistance in certain circumstances, subject to appropriate safeguards. The IAASB’s proposed revised ISAs are expected to take a similar approach. The FRC board concluded that, because using internal audit staff as members of the audit engagement team is contrary to the principle of independence, this should no longer be permitted. This was also the advice of the audit and assurance council.
“Direct assistance involves some of the audit being undertaken by individuals that are not independent of the audited entity,” said Nick Land, FRC board member and chairman of the audit and assurance council. “Shareholders generally expect that external auditors should be seen to be free from threats to their independence.
“Permitting the direct use of internal auditors involves agreeing lower independence standards for some members of the audit engagement team, which leans against this expectation. Accordingly, the FRC has concluded that this should no longer be allowed.”
The FRC’s consultation on timing of implementation will be open to 9 April 2013.