| LONDON, June 19
LONDON, June 19 A British watchdog has banned
accountants from asking customers' internal auditors directly
for help in checking the books in a bid to bolster their
The Financial Reporting Council, which polices accountants
and auditors, said on Wednesday the ban creates a clearer
division of responsibility between internal and external audit.
Internal auditors are employees of a company and one of its
"three lines of defence", the other two being the compliance and
External auditors are from outside the company and check on
the financial reports of listed companies. Some use internal
auditors directly on their teams, which the FRC has raised as a
clear conflict of interest.
"Prohibiting direct assistance supports stakeholders'
expectations that external auditors should be free from threats
to their independence," FRC board member Nick Land said in a
The ban, which goes beyond current international auditing
standards, will apply for audits of company statements for
periods ending on or after 15 June 2014.
Accounting firms have been criticised for giving banks a
clean bill of health just before many had to be rescued by
taxpayers in the 2007-09 financial crisis. The UK Competition
Commission has said accountants can be too cosy with clients.
Hywel Ball, head of assurance at Ernst & Young, one of the
world's "Big Four" accounting firms, said some assistance from
internal auditors does not present a real threat to independence
of the outside accountants.
"Introducing this prohibition now will add complexity to the
planning of multi-location audits," Ball said.
Internal auditors at banks have also been slammed as being
Britain's parliamentary commission on banking standards
published a report on Wednesday which said heads of internal
audit at banks should report directly to the board as they have
lacked the status to challenge front-line staff properly.
A board member should be responsible for ensuring an
internal auditor's independence, the report said, to make sure
that they are willing and able to speak out when necessary.
The Chartered Institute of Internal Auditors said an
independent committee will shortly report on a new code of
practice for internal audits in banks and address the