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Tax and Audit separation

How to make change easy

Andrew Hawley, Partner, Corporate Tax
11/06/2024
man and woman walking in the city

We are living in a world where change is happening at a fast pace in all aspects of our lives whether it be in work or at home. The accountancy world has not been left out with independence and regulatory pressures in the audit market outside the listed company arena creating further restrictions on the services firms can provide to audit clients.

As my colleague, Matthew Stallabrass an audit partner advises me, this is mainly being driven by the Financial Reporting Council (FRC) continuing to widen the rules on ethical and auditing standards meaning in an increasing number of instances accountancy firms are restricted from providing both non-audit and audit services to their clients. Such restrictions are not limited to listed businesses with rules having the potential to impact all sizes of business although the impact will likely be greater for larger corporates given services provided to these businesses tend to be more complex.

This change is giving more and more company finance leads a new problem of having to go to market and find another service provider. This is often not welcome at a time when businesses are trying to reduce their cost bases, introduce further process efficiencies and experiencing more administrative requirements in many other areas across the business.

Historically, accountancy firms provided both audit and corporation tax services to many of their clients alongside each other. Therefore, the fallout of audit firms not being able to provide tax services to certain clients often means a company needs to seek out a new advisor that can provide a full tax service and communicate effectively with their current auditor.

In an environment of increasing pressure on resources and rising costs it can often be a challenging task for a company’s finance led to find the right advisor and be confident that they have the ability to deliver what they need.

At Crowe, we have been through this process with many businesses recently and only see this getting more frequent in future years. By working closely with clients and their previous service provider we can provide a smooth transition and new perspective as well as implement an efficient methodology.

For instance, where Crowe takes on the tax service, we can prepare the corporate tax numbers for inclusion in the statutory accounts to an agreed timetable and support our clients with all their tax needs without their being any conflicts to manage around the audit service given this is provided by a separate firm. Similarly, where a current advisor retains the corporation tax, we can take on the audit service and provide a focused approach that can help manage an actual or perceived independence concern.

Crowe have taken on a number of new tax only and audit only engagements in recent years where a company or group’s current advisor were no longer able to provide both. In such circumstances a business is often concerned about a number of areas associated when changing advisors, especially where an audit and corporation tax service has run smoothly for many years.

From our experience there is commonality in the key areas we find finance leads are concerned about when facing the task of having to separate their audit and tax services. 

1. Business disruption

We can implement a smooth transition through listening and taking the time to understand the business and its specific needs. This enables us to take account of what has worked well historically and use our experience to come up with new ideas that could lead to new ways of doing things and increased efficiency. We are used to working with companies to accommodate our services around their internal timetables and resource constraints. 

2. Loss of historical knowledge

We work closely with a company’s previous advisors and invest time to understand historical positions and absorb relevant historical knowledge. Often where a business is retaining the advisor to provide the audit or tax service such knowledge would not be lost and is still very accessible where effective communication processes are put in place. 

3. Different processes

We plan and agree a methodology that is reflective of any current processes that have worked well for a business in the past. However, we also bring fresh ideas that add value and drive efficiencies. 

4. Different ways of working

We bring a new perspective. A good new advisor will provide fresh perspective, have different experiences and knowledge and challenge the norm for the better. 

5. Cost

Through having separate audit and tax advisors there may be an opportunity to save costs. However, we find this is often not a key driver as often the benefits of a new advisor will provide a saving in a variety of ways whether that be actual cost, time or through making recommendations to the business that adds value in other ways both now and in the future. 

6. Timing

We find through making the decision to change tax or audit advisors at the right time in a financial period, this enables enough time for a smooth transition and is key to achieving minimum business disruption.

Key to manging the above includes early engagement to agree a robust plan, decisive implementation to execute the plan supported by accessible staff and open communication.

Here at Crowe, we understand the challenges and concerns and have the experience to guide businesses through a transition of tax advisor or auditor. It is also important not to forget that with change comes new opportunity for your business.

Therefore, if your business is required to separate its tax services from its audit services, or as a board you feel a change will be required soon or would further support independence and governance priorities of the business please do get in touch with one of our specialists.

Initial questions finance leads and/or boards might want to consider include: 

  • Does your business fall within the rules that require you to separate your tax and audit services? 
  • If your business uses the same advisors for tax and audit services do you have an actual or perceived independence concern irrespective of whether splitting these services is mandatory? 
  • If you are going to separate your tax and audit services when would be the best time to make the change taking account of when the next cycle of work starts?

For more information on how Crowe can help, please contact Andrew Hawley, Emma Locken or your usual Crowe contact.

Contact us

Andrew Hawley
Andrew Hawley
Partner, Corporate Tax
Thames Valley
Emma Locken
Emma Locken
Partner, Corporate Tax
London