Auditors must split from suppliers

MPs have called for accountancy firms to be banned from providing expensive IT systems to companies they audit.

MPs have called for accountancy firms to be banned from providing expensive IT systems to companies they audit.

The all-party House of Commons Trade and Industry Committee said that while there should be no general statutory prohibition on the provision of non-audit work by firms to organisations they audit, there was a particular problem with computer networks - especially financial control systems.

The MPs backed a tighter general self-regulation system, but warned of new laws if this failed. They were reporting on restoring confidence in corporate governance following financial scandals at companies such as Enron and WorldCom.

The committee said, "We see a change in the balance between audit and non-audit work as being vital to guarantee auditor independence."

The committee noted the view of various witnesses that despite the measures taken by the accountancy profession in the past year to tighten and clarify controls on the provision of non-audit services, further strengthening was required.

The MPs said, "We are aware that particular concerns have been expressed about the supply of expensive IT system, especially financial control systems; and it seems to us to be obvious on first principles that external auditors should not also be involved in the provision of internal audit systems. We would therefore recommend a strengthening of the requirements in this area."

MPs said it would be the responsibility of an independent body to set standards to uphold the independence of auditors. "If such regulation seems to be failing, however, we believe that the government should reconsider whether it is necessary to impose statutory restrictions on certain types of non-audit work."

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