Auditor independence and non-audit services - ICAEW

which ACCA does not regulate. However there are likely to be in excess of 10,000firms of registered auditors in all.Of these firms 102 audit listed companies. (There may possibly be one or two moreregulated by ACCA, but this information is not available.) Table 3.3 below, extractedfrom the ICAEW, ICAS and ICAI shows the best estimate of the structure of thelisted company audit market as at December 2000.Table 3.3: Number of audit firms acting for listed companiesNumber offirmsNumber ofpartnersNumber oflisted clients51 2-10 6235 11-50 58916 51+ 1997Total 102 2648Source: Audit Regulation: ICAEW, ICAS and ICAIreport to the DTI for the year 31 December 2000.As can be seen from this table, the market is highly concentrated. 50% of firms aresmall and have only 62 (2%) listed clients between them. The 16 largest firms (thosewith more than 51 partners) undertake 75% of listed company audits.There are believed to be approximately 1.4m live companies in the UK of which12,000 are plcs. Under the current threshold for small company audits, approximately600,000 of these companies (Fearnley, Hines, McBride and Brandt, 2000) arebelieved to be eligible for exemption from audit, but it is not known how many havetaken advantage of the exemption. There are still a large number of smaller companiesrequiring audit.3.6.2 Applicability of independence frameworksIndependence frameworks theoretically apply to all auditors but include statementswhich recognise the different position of the auditor of the small company. EC, forexample (para.12) refers to the cost and benefits of applying some of therecommended safeguards to smaller companies. EC 4.1.1 refers to the independencerisk in relation to management decisions where ‘the statutory auditor may find himselftaking such decisions without meaning to.’In the small company environment, in the absence of a finance director, the auditorhelps the client with preparation of accounting records and advises on manyaccounting and business issues. We suggest that there is a high risk in this context thatthe auditor may be taking management decisions and auditing his or her own work.Although the public interest in small companies is usually low and many are ownermanaged,it may be an appropriate time to consider whether one framework for all isstill appropriate, particularly if regulators are minded to tighten up in respect of listedand public interest companies.3.7 Summary and commentsThis analysis shows that the provision of NAS is recognised in the frameworks asthreatening both an auditor’s objectivity (independence in fact) and independence inappearance. The threats to independence in fact are wide ranging, covering the risks23