the provision of NAS(A); or even complete prohibition of the provision of NAS by firms offering statutory audit services. If it is believed that the workings of the market will ensure that firms only deliver NAS(A) to the point at which the marginal benefit to society of such provision is equal to the marginal cost in terms of the threat to independence, then the case could be made for no further regulatory intervention. There has been significant market change post-Enron, both in terms of accounting firms voluntarily withdrawing from the provision of certain types of NAS(A) (for example, internal audit) and in a greater reluctance by clients, responsive to the concerns of the capital markets, to purchase NAS from their auditor. However, the current crisis of confidence in the profession at least does raise significant doubt about whether the position has indeed been optimal in recent years, and in the present political climate one would need a strong belief in market efficiency to advocate that no action should be taken. Extending the range and type of proscribed services in line with those of the SEC and considered by the European Commission is another option. It is, however, difficult to determine, within the framework of the arguments outlined above, which particular services carry the greatest threat to auditor independence. It is also likely that any attempt to categorise services in terms either of traditional association with audit, for example, taxation services, or linked assurance services necessary to ensure compliance with statutory or other regulatory requirements will be fraught with difficulty. This difficulty is exacerbated given that services are constantly evolving and being redefined (Jeppesen, 1998). Given the concerns about the effect on independence, the underpinning argument for allowing audit firms to provide services other than audit to their clients in today’s commercial environment might indicate that to interfere in the workings of the market would impose economic costs, and that these costs outweigh any possible costs attendant upon non-independent behaviour by auditors. However, the costs of intervention are difficult to quantify and are indeed based on an intuitive perception that there must be economies of scope from the joint provision of audit and non-audit services. In contrast, in North America at least, the perceived costs of non- independent audit behaviour are salient and resulted in prohibition of a wide range of NAS(A) (SOX, 2002), with increasing concerns about the impact of NAS on the quality of audit within the UK and Europe (see, for example, EC, COM(2011) 779). We also note that a combination of market trends and regulatory pressures have led to a considerable decline in joint provision. In this regard it is interesting that the Chinese Institute of Certified Public Accountants (CICPA) wishes to encourage Chinese audit firms to develop NAS in order to expand their skill set, enhance their business awareness and compete with foreign firms (and especially the Big Four). They
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- Summer '18
- The Land