Most business managers and non-profit directors hire external auditors for specific audit-related needs only. These outside experts review the organization’s books and financial statements which then get distributed to external shareholders, the public, or other B2B institutions. In recent years, however, auditors have been aiming to diversify into new lines of business to provide non audit services to clients. For a business owner or non-profit institution, this means potentially saving on costs by also contracting their auditor for additional jobs, assuming they have the expertise and are a good fit for the requirements of the services.
But, ethically, can auditors provide non audit services? It would certainly be more convenient in many cases to have an auditor “fill-in” on other compliance or maintenance needs for some business during their site visits. However, going this route can raise some questions among business leaders if there are shared services which an outside observer would view as questionable for an auditor to provide. Here are some key considerations if you are thinking about utilizing your auditor for non audit services.
Can Auditors Provide Non Audit Services? Some Guidelines
Some firms are developing their own governing guidelines regarding this question. For example, PricewaterhouseCoopers advises the following:
- Some services are a threat to auditor independence and objectivity.
- There should be transparency about the detailed processes and standards which safeguard independence.
- Auditors should be allowed to provide services like tax compliance and advice.
- A prescribed list of permissible services, or a price cap would not be appropriate.
While firms may set their own internal guidelines, ultimately the SEC has made it clear where the lines are. Moreover, this powerful agency can enforce laws that prohibit specific conflicts of interest. The SEC clearly states that an auditor must not provide:
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions or human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services and expert services unrelated to the audit
Some of these examples may seem obvious. However, business leaders can easily find themselves in the news for the wrong reasons. The differentiation of entities can become blurred, and tight-knit business relationships can lead to haphazard decision-making that open businesses up to legal challenges. Furthermore, auditors can’t audit their own work, so if the additional services include activities like preparing tax returns, then a different firm would need to provide auditing services, likely defeating the purpose of trying to expand the auditor’s scope in the first place.
Ethical & Legal Considerations
Companies that are not large enough for an audit committee will need to take extra care to ensure that their non audit services provider is operating within the appropriate boundaries. The first thing to check is that the provider has the additional services listed on their website, marketing materials, or that they are otherwise well-documented for the public. This will avoid the appearance of the firm’s independence being compromised as well as prevent any ethical or legal concerns about the additional services.
If it still seems there will be any gray area about an auditor’s non audit roles, it is worthwhile to find an attorney who can advise about best practices in your particular state, as rules vary across the country. Always err on the side of caution when it comes to ethical and legal considerations. While it can take some extra legwork, applying extra care upfront can prevent a lot of headaches later down the line.
Choosing the Best Firm for the Services You Need
Most companies will need additional services to make operations run smoothly and to maintain a professional experience for clients and staff. Contracting with an auditor for these services can be a very effective time-saver, as you won’t need to reinvent the wheel by scheduling exploratory meetings with another service provider to bring them onboard and up to speed. It can save labor, money, and strengthen an already-existing partnership even further.
However, contracting your auditor for these additional services should only be done after completing a thorough review to avoid unexpected conflicts of interest. In this review process, don’t forget to:
- Have a complete description of auditing and non audit related tasks listed side by side.
- Review the SEC guide.
- Talk with other business owners in your industry about their experiences.
- Get some outside legal counsel at the start, to ensure nothing is amiss.
Once you’ve completed your comprehensive review, you can feel confident knowing that your audit and advisory firm will help you meet your business goals while abiding by strict ethical standards.
At SD Mayer, our audit services team, assurance services professionals, and financial advisors all work together to deliver objective advice and comprehensive guidance to help our clients grow their business, improve their performance, and manage risk more effectively. If you are looking for the best audit advisory services, contact us today to learn more.