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John Selwood's Q&As

The new FRC Ethical Standard was a hot topic of conversation at recent faculty roadshows. John considers some of the questions this prompted.

Question: I have several audit clients where I am the audit engagement partner and I attend the quarterly meetings of the board of directors. It has been suggested to me that this is not appropriate and that the threats to independence that arise are unacceptably high. Is this view correct?

Answer: I am aware that it is not unusual for auditors to regularly attend meetings of the board of directors, but the independence problems that might arise should not be ignored. In such scenarios there are many issues that could potentially affect independence and these will vary from case to case. Nonetheless, great care needs to be taken in all instances to identify and address any management threats. In some scenarios, regular attendance at board meetings may be prohibited. For example, if the client is a Public Interest Entity (PIE), the new Financial Reporting Council (FRC) Ethical Standard (ES) that applies for periods commencing 17 June 2016 (paragraph 5.167R (b)) prohibits auditors from “... playing any part in the management or decision-making of the audited entity”. So regular attendance at the board meetings of a PIE would certainly be prohibited.

In respect of other audits, the auditor is prohibited from “acting as management” or “doing anything that is the responsibility of management”. So the question has to be asked, why are auditors being invited (and being paid, presumably) to attend board meetings?

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