The Auditing Practices Board has issued Bulletin 2008/06 as guidance on Section 503(3) of the Companies Act 2006 (CA 2006) which requires, where the auditor is a firm, that the auditor's report must be signed by the senior statutory auditor in his own name for and on behalf of the auditor. This requirement applies to auditor's reports for financial years beginning on or after 6 April 2008.
The only restriction in CA 2006 is that the person identified as senior statutory auditor of a company must be eligible for appointment as auditor of the company in question.
Subject to meeting this requirement, the APB have decided that the term "senior statutory auditor" has the same meaning as the term "engagement partner" which is defined in ISA (UK and Ireland) 220 as follows:
The partner or other person in the firm who is responsible for the audit engagement and its performance, and for the auditor's report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body.
This appears very straightforward but there are a number of problems which can arise as a result of the requirement for the senior statutory auditor to sign personally – nobody else can sign on his or her behalf. Problem areas are dealt with in the bulletin and summarised in the questions and answers below.
Question 1: What are the requirements if the audit firm changes the senior statutory auditor during the engagement?
Answer: The new senior statutory auditor must review the audit work performed to the date of the change. The review procedures must be sufficient to satisfy the new senior statutory auditor that the audit work performed to the date of the review has been planned and performed in accordance with professional standards and regulatory and legal requirements.
Question 2: What will be the implications if the senior statutory auditor is unable to be present to sign the auditor's report?
Answer: Under section 503(3) of CA 2006, the senior statutory auditor must sign the auditor's report. Another partner, or responsible individual, is not able to sign for and on behalf of the senior statutory auditor.
If the senior statutory auditor is unable to continue to take responsibility for the direction, supervision and performance of the audit the audit firm must appoint a replacement senior statutory auditor. The answer to Question 1 sets out the work that is then required.
If the senior statutory auditor is absent but is still able to, and does, take responsibility for the direction, supervision and performance of the audit the senior statutory auditor may sign the auditor's report using electronic means (e.g. e-mail or fax).
Question 3: What will be the implications if the auditor's report needs to be signed on a particular date and the senior statutory auditor is unable to be present to sign the auditor's report on that date?
Answer: The APB suggests that it would be pragmatic for the audit firm to have a contingency plan as to who would succeed as senior statutory auditor in the event that the audit is at an advanced stage but the senior statutory auditor is unable to sign the auditor's report.
If another audit partner is actively involved in the audit engagement, a suitable contingency plan may be for that other partner to work in parallel with the senior statutory auditor and be able to take over as senior statutory auditor if the need arises.
If no other partner has worked in parallel with the senior statutory auditor, then the APB is of the view that in such exceptional circumstances it is permissible for the engagement quality control reviewer to be appointed as the replacement senior statutory auditor where:
(a) the engagement quality control reviewer has completed his or her review; and
(b) the audit is at an "advanced stage" as defined by Bulletin 2008/2 which deals with the auditor’s association with preliminary announcements.
This is subject to the condition that the engagement quality control reviewer is eligible to be appointed as the senior statutory auditor.
Once an engagement quality reviewer has been appointed as a replacement senior statutory auditor he or she can no longer act as the engagement quality control reviewer because his or her objectivity may have been impaired through assuming the role of senior statutory auditor.
Question 4: Where a company appoints joint auditors, are there two senior statutory auditors?
Answer: Yes. Each of the auditing firms appoints a senior statutory auditor and both are required to sign the auditors' report in accordance with the requirements of section 503 of CA 2006.
Alan Bonham
25 April 2008