Financial Times

Tough new audit guidelines
New guidelines for auditing listed companies issued by the Securities and Exchange Commission have proposed rotating lead partners in audit firms and restrictions on audit company employees joining the firms they have audited.

The guidelines say that the Lead Engagement Partner in the audit firm should be rotated at least once in every five years, to be effective from 2006.

Under conflict of interest guidelines, it said that the audit fees from a single client should not exceed 10 percent of the total audit fees received during the previous accounting year.

A member of the audit team should not be employed by the company or by its parent, subsidiary or associate within two years from the date of the audit report. The company cannot appoint a firm, if a partner or employee of the same firm was employed during the previous year as CEO, CFO or head of internal audit of that company or its parent, subsidiary or associate.

Listed companies must ensure that no member of the senior management of the audit firm or his/her spouse, dependent children and financial dependants owns or trades in equity of the company or its parent, subsidiary or associate or holds a directorship or senior management position in the company or its parent,subsidiary or associate.

Listed companies must also ensure that neither the firm nor the partners and any related party is engaged in non-audit services like book keeping, valuation services, internal audit, human resource and payroll services, legal services or as investment adviser.

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