Auditing and Assurance Standards and Guidance

Ethical Standards for Auditors

Ethical Standard(s) for Auditors - applicable in Ireland - applicable for periods beginning before 17 June 2016

ES 4 Fees, remuneration and evaluation policies, litigation, gifts and hospitality (Revised 2010)

Threatened and actual litigation

48

Where litigation in relation to audit or non-audit services between the audited entity or its affiliates and the audit firm, which is other than insignificant, is already in progress, or where the audit engagement partner considers such litigation to be probable, the audit firm shall either not continue with or not accept the audit engagement.4

49

Where litigation (in relation to audit or non-audit services) actually takes place between the audit firm (or any person in a position to influence the conduct and outcome of the audit) and the audited entity, or where litigation is threatened and there is a realistic prospect of such litigation being commenced, self-interest, advocacy and intimidation threats to the auditor's objectivity and independence are created because the audit firm's interest will be the achievement of an outcome to the dispute or litigation that is favourable to itself. In addition, an effective audit process requires complete candour and full disclosure between the audited entity's management and the engagement team: such disputes or litigation may place the two parties in opposing adversarial positions and may affect management's willingness to make complete disclosure of relevant information. Where the auditor can foresee that such a threat may arise, the auditor informs the audit committee of its intention to resign or, where there is no audit committee, the board of directors.

50	The auditor is not required to resign immediately in circumstances where a reasonable and informed third party would not regard it as being in the interests of the shareholders for it to do so. Such circumstances might arise, for example, where:

the litigation was commenced as the audit was about to be completed and shareholder interests would be adversely affected by a delay in the audit of the financial statements;

on appropriate legal advice, the audit firm deems that the threatened or actual litigation is vexatious or designed solely to bring pressure to bear on the opinion to be expressed by the auditor.

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