Auditor Independance 2431
dvk last edited by
Can the external auditor perform internal audit services or other restricted services provided the same is approved by audit committee and also disclosed in 10 K.
gmerkl last edited by
Section 10A (g) (5) of the Securities Exchange Act (15 U.S.C. 78j-1) prohibits the issuer’s registered public accounting firm to also provide ‘internal audit outsourcing services’.
Subsection (h) provides that the issuer’s audit committee can pre-approve non-audit services, which are not listed in subsection (g).
SEC Release 33-8183 Strengthening the Commission’s Requirements Regarding Auditor Independence, dated 28 January 2003, implements section 10A of the Securities Exchange Act. Section II. B. 5. discusses internal audit outsourcing services.
‘The rules we are adopting prohibit the accountant from providing to the audit client internal audit outsourcing services. This prohibition would include any internal audit service that has been outsourced by the audit client that relates to the audit client’s internal accounting controls, financial systems, or financial statements unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the audit client’s financial statements.’
‘Along those lines, this prohibition on ‘outsourcing’ does not preclude engaging the accountant to perform nonrecurring evaluations of discrete items or other programs that are not in substance the outsourcing of the internal audit function. For example, the company may engage the accountant, subject to the audit committee pre-approval requirements, to conduct ‘agreed-upon procedures’ engagements related to the company’s internal controls, since management takes responsibility for the scope and assertions in those engagements. The prohibition also does not preclude the accountant from performing operational internal audits unrelated to the internal accounting controls, financial systems, or financial statements.’
The regulation itself can be found in 17 CFR 210.2-01 ‘(v) Internal audit outsourcing services. Any internal audit service that has been outsourced by the audit client that relates to the audit client’s internal accounting controls, financial systems, or financial statements, for an audit client unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during an audit of the audit client’s financial statements.’
Yes, provided that the internal audit does not cover auditing internal control over financial reporting (unless it is cleary immaterial, such as at immaterial subsidiaries or for items which are not material to the financial statements). Allowed internal audit services should be pre-approved by the audit committee.
kymike last edited by
You need to be very careful in this area. Most public companies will not engage their external auditor to perform these types of functions just to stay on the safe side of the SEC rules.
Any non-audit work that your external auditor is engaged to perform along with the fees paid for that work must be disclosed in your annual 10K or proxy.