- Impermissible nonaudit services include:
- Financial information systems design and implementation
- Legal and expert services
- Internal audit outsourcing services
- Appraisal/valuation services
- Human resources (HR) and management services
- Investment banking, investment advisor and broker dealer services
- Legal and expert services unrelated to the audit
- Bookkeeping
- Any other services that the newly constituted Public Company Accounting
Oversight Board may deem impermissible
- The lead engagement partner of the external auditing firm and the lead review
partner must be rotated every five years. (It is further anticipated that this pro-
vision may ultimately be extended to other members of the audit team.) - The external auditor must report to the audit committee its assessment of the
critical accounting policies and practices of the company as well as any dis-
agreements with management - The audit committee is required to review and discuss with management and the
external auditors the effectiveness of the company’s internal control structure
and procedures and the auditors will be required to attest to management’s in-
ternal control assessment, which in turn is to be disclosed in the company’s an-
nual report. - Prohibition of improper influence on the conduct of audits by directors or man-
agement
(a) Scope of Services. There are several dimensions to the question of what services
the auditors are to provide. The annual audit of the group financial statements is the
obvious starting point, which, together with other aspects of the scope of possible
services, is discussed next.
(i) The Audit
SINGLE OR MULTIPLE AUDITORS. Predominant practice is to appoint a single audit firm
to perform an audit sufficient in scope to issue an opinion on the group financial state-
ments. With operations in many locations and countries and possibly in different
businesses, the audit of an international company’s group financial statements re-
quires communication and a high degree of coordination between the auditors in-
volved as well as a clear understanding of their respective responsibilities. These au-
ditors also require leadership, organization, and control by those who are responsible
for the audit at the group or parent company level.
There are distinct advantages to appointment of a single audit firm as auditors to
all subsidiaries in a group:
- The engagement partner at the group level is responsible for coordinating all
service to the company. The company can look to one person to initiate action
to meet their needs throughout the world. - Comprehensive and timely reporting to the parent company’s audit committee
31.2 ESTABLISHING EXPECTATIONS 31 • 3