ISCA recommends practices for auditor independence in non-assurance services

THE Institute of Singapore Chartered Accountants (ISCA) on Thursday unveiled a series of recommendations in a bid to strengthen auditor independence in relation to the provision of non-assurance services.

This comes as the provision of non-assurance services to audit clients have been perceived to affect auditor independence. It is also unclear what information those charged with governance consider relevant when assessing the independence of audit firms, said ISCA in a press statement.

Some 400 audit committee members were surveyed on their views on matters concerning auditor independence when providing non-assurance services to audit clients, and on ISCA's recommendations to address these concerns.

Close to 70 per cent were in favour that approval should be obtained from those charged with governance before the audit firm can be appointed to carry out non-assurance services.

Currently, auditors only need to provide disclosure to those charged with governance if the fees for non-assurance services provided exceed more than 50 per cent of the audit fees.

Meanwhile, majority of the respondents agreed that information on non-assurance services provided by network firms (of the audit firm) to upstream and sister entities is important. However, it is practically difficult for an audit firm to obtain such information, said ISCA.

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Against this backdrop, more than 90 per cent of the respondents supported the recommendation that an audit firm obtains 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 1 per cent of the network firm's revenue.

If the amount exceeds 1 per cent, the audit firm has 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.

All the respondents were also in favour of refining the definition of "audit-related services" to address the wide scope of non-assurance services under the current EP 100 Code of Professional Conduct and Ethics.

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.

Said ISCA's chief executive officer Lee Fook Chiew: "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," said Mr Lee.

ISCA had highlighted the key recommendations to the International Ethics Standards Board for Accountants for consideration in its revision of the International Code of Ethics for Professional Accountants.