21-06-2013
21-06-2013

FRC prohibits the use of internal audit staff on the external audit team

The FRC introduced a measure that creates a clearer division of responsibility between internal and external audit teams to safeguard against conflicts of interest. By prohibiting auditors from using internal audit staff as “direct assistance” members of the audit team, the FRC is seeking further to ensure the independence of the external auditor and promote greater confidence in the integrity of the audit for investors.

The prohibition comes into effect for audits of financial statements for periods ending on or after 15 June 2014.

Nick Land, FRC Board member and chairman of the Audit and Assurance Council, said:

“Prohibiting direct assistance supports stakeholders’ expectation that external auditors should be free from threats to their independence. In determining the effective date of the prohibition, the FRC has taken into consideration that planning the use of the work of internal auditors may take place early in the financial period being reported on.”

In February 2013, the FRC confirmed that it would adopt the revised international auditing standards on the external auditor’s use of work carried out by internal audit. In doing so, it also announced that it was minded go beyond the international standard, and prohibit the direct use of internal audit staff on the external audit team, to enhance the principle of auditor independence.

The feedback to the consultation suggested that there could be logistical issues for audits that have already begun when the prohibition comes into effect. To remedy this, the FRC concluded that the prohibition should be applied prospectively and the implementation date reflects this.

Other revisions to the FRC’s auditing and ethical standards to reflect the revised international auditing standards on the external auditor’s use of work carried out by internal audit will also have the same effective date.

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