Regulating Non Audit Services:Towards a Principles Based Approach to Regulation
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Based on the argument that the benefits conferred through the provision of non audit services by
audit firms outweigh the attributed costs of safeguarding the auditor's independence, this paper
will not only seek to justify this argument, advance proposals which do not favour an outright
prohibition of the provision of non audit services, but also consider means through which non
audit services could be regulated in order to facilitate competition in the audit market. At the
same time it will consider various legislation which have been introduced in recent years and
which are aimed at facilitating greater disclosure of information – hence improving transparency
within the audit and financial markets. “Specific measures,” it is contended, “would involve not
only the introduction of new standards (for example – the disclosure of client concentration) but
also the elimination of current restrictions“. Different types of safeguards which exist in order
“to mitigate or eliminate threats” to the auditor’s independence, as a result of the provision of
non audit services, will be considered against the regulator’s aim to facilitate competition,
enhance disclosure and promote other practices which would advance the regulator’s endeavour
to be more “market friendly”.
The consultation on control structures in audit firms and their consequences on the audit market,
a consultation which was launched by the European Commission as part of its efforts to create
more market players, could be regarded as a response to such proposals to facilitate a more
“market friendly” environment and also to concerns that the financial market is already over
regulated. Some of the possible ways advanced by the Commission as channels for facilitating
greater entry into the international market include the deregulation of the capitalisation of audit
firms as a catalyst for facilitating greater entry into the audit market. Deregulation of the capital
structure in this sense is considered to be a “modification of Article 3 (4) of the 2006 Directive
on Statutory Audit which should however not be to the detriment of robust independence rules.”
Keywords
HG Finance