Revised Ethical Standard Issued in UK

The changes to the ES are designed to address concerns regarding the independence of auditors and conflicts of interest that arise. To achieve this the “objective, reasonable and informed third party” test, a core element of the ES, is redefined to make it more effective. The test now focusses on the perspective of stakeholders who are the ultimate beneficiaries of the audit process. When considering whether the principles of the ES have been met, reference is made to the perspective of a third party, which is informed about the roles and responsibilities of an auditor, those charged with governance, and the entity’s management, but is not themselves an audit practitioner. This will require auditors to have a greater understanding of an entity’s key stakeholders and their expectations as to how auditor independence should be ensured.

The existing approach of having more stringent requirements for the audit of PIEs remains, but the ES now extends these constraints to other entities where there is significant public interest to stakeholders, such as private entities with more than 2,000 employees.

Auditor independence may be impaired when non-audit services are provided to an audit client. This is addressed by a change of approach for the audit of PIEs and other entities of public interest, with the introduction of a new list of permitted services that can be provided to an audit client, all of which are related to the audit itself or are required by law.

Further changes restrict all auditors from providing internal audit and recruitment services and rule out work under contingent fee arrangements. For some firms this is significant to the services they can now offer.

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