Separating tax advisory and auditing functions: Why it matters

Separating tax advisory and auditing functions: Why it matters 

It’s over 20 years since the Enron accounting scandal which led to the company’s collapse, as well as the demise of Big 5 accounting firm Arthur Andersen.  It was a hot topic on the graduate milkround in 2002 – I actually recall discussing Enron in my interview with Andersens in Manchester early that year (I’m glad  I accepted PwC’s offer instead!). Having then spent two decades working in tax in the Big 4, I’ve experienced first- hand the frustrations of ever tightening auditor independence regulations.   When I joined Inspired in 2022, I was struck by the freedom of not working in a firm that provided audit services.  As a tax-only practice, at Inspired we have a nimbleness that is just not possible in an audit firm, and can be responsive and proactive without having to wade through layers of approvals and bureaucracy.   

Audit independence rules prohibit non audit services (including taxation) for many large businesses and listed companies, as well as reducing the scope of non-audit services for all businesses that are subject to an audit. The intention behind these rules is to improve audit quality by enhancing auditor independence.   

Even where the full prohibition on non-audit services does not apply, we are increasingly seeing private businesses make the decision to separate their audit and tax advisory providers.  

This separation ensures that each professional services provider can focus on their specific expertise – the auditor on financial accuracy and the tax advisor on tax compliance and optimisation – resulting in a more transparent and reliable overall financial management process for businesses.  

What are the benefits of using a separate tax advisor and auditor? 

Independence and objectivity: 

  • The auditor should be better placed to ensure a truly independent and robust audit.  A Separate tax advisor can focus solely on tax compliance and optimisation of tax strategies.   

Expertise and specialisation 

  • Tax legislation is complex and ever-changing; therefore, having a dedicated tax advisory firm that isn’t restricted in the services they can offer provides easy to access specialised knowledge when it is required. 

Clear lines of communication and responsibility 

  • By using an audit firm purely for audit services, lines of communication and responsibility over services (eg audit of tax) are more clearly drawn.   

Sharper focus 

  • Separation allows professionals to focus on their area of expertise – auditors can concentrate on core responsibilities, and tax advisors dedicate their efforts to planning and compliance. 

Efficiency  

  • The red tape which the auditor and tax advisor have to navigate when they are both part of the same professional services firm (eg Audit Partner approval / authorisation for services), and the additional time and cost of that, is removed.   

Better choice 

  • Many companies select an audit firm and unconsciously end up with a tax advisor from the same firm that they might not have selected.  Making the conscious decision to separate audit and tax provider gives the company the ability to choose their tax advisor.   

In summary, the separation of tax advisory and auditing functions helps maintain independence, ensures specialised expertise in each area, mitigates conflicts of interest, and supports a more comprehensive and effective approach to financial management. Whilst complete separation of auditor and tax advisory provider is not mandatory for most businesses, it comes as no surprise that increasingly businesses are making the decision to separate and view this as best practice.   

Inspired is Northern Ireland’s only professional services firm with a single focus on tax advisory.  We take a long term, proactive approach to corporate tax planning, offering a breadth of tax services including corporation tax compliance, tax incentives, and tax advisory assignments such as corporate restructuring and succession planning. 

If you would like to discuss how Inspired could become your tax partner, please contact our experts  

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