Assignment Question Topic is :  Evaluating the IFAC’s view in relation to provision o f non-audit services.

Assignment Answers Overview :

Introduction

The European commission had released a legislation that proposes many reforms for the audit of firms. If the particular legislation gets sanctioned very soon it will be transformed into laws that will totally govern the audit market. The IFAC has in response to such a legislation have agreed on certain reforms while being non supportive on many other proposals that includes the prohibition of the non audit services. The following report evaluates the legislation and the response of the IFAC with regard to the prohibition of non audit services.

Explanation

The European commission which had recently released the legislation related to the audit market reforms has attracted the comments from IFAC.

European Commission legislation

As per the legislation, there is a complete ban on the audit firms that is also providing non audit services.  The firms which hare involved in both audit and non audit services have to bring about a lot of structural transformations to segregate the two different services.

Non Audit services

Many companies hired the audit firms for many of the non audit services which included professional advice or consultation services, book keeping, design of the financial system and implementation of the same, actuarial services and etc. Most of the audit firms earn a major portion of their total income from such non audit services. And this has been a topic of debate for very many years as many felt that the degree of professionalism is lost in the race to earn more revenue through such non audit services.

Code of Ethics: Independence: Assurance engagement

The section 290 of the code of ethics of IFAC for professional accountants clearly depicts that the auditor must be given complete independence to give his opinion on the financial statements of any company. Also, the audit firms have to identify and safeguard against the threats caused to their professional independence.

IFAC comments

Though IFAC has agreed on many of the proposals given out by the legislation, it has strongly criticised the prohibition of the non audit services as it is hindering the independence of the auditor. IFAC is in support of the code of ethics for professional accountants that ensure that the auditors have complete independence in their profession.

The change in such a structure of the audit firms who involve in non audit services is in a way restricting their professional independence. The IFAC believes that by indulging in non audit services and purely audit services, the firms get more competent and also knowledge in fact enhances their quality of services. Also, such services will help the companies to present their financial information in a better way and the non audit services are paving the way for better audit control and presentation of the financial statements.

Conclusion

As per the IFAC, if such legislation is transformed into a law then it will greatly hamper the independence of many audit firms which his against the professional ethics. Also, the size of firm does not decide the quality of the work and so such proposals will create many other problems to firms especially the public entities.

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