The body that sets ethical standards for U.K. auditors is about to review its rules on the non-audit services that firms can sell to their audit clients. The move comes amid the controversy of an “integrated financial assurance” deal that KPMG agreed with Rentokil Initial, a U.K-listed business services company.

KPMG is taking over from Rentokil’s previous external auditor—PricewaterhouseCoopers—and will provide some internal audit services alongside its external audit work. The company says its assurance bill will fall by 30 percent as a consequence.

The deal has prompted concern in audit and corporate governance circles. Richard Chambers, global president and chief executive of the Institute of Internal Auditors, stated: “Internal audit services should not be provided by the same accounting firm that audits the organization’s financial statements, as it would impair the independence of the external auditor.”

Oliver Tant, KPMG’s head of audit in the UK, conceded that the deal may well fall foul of the Sarbanes-Oxley Act and SEC rules if it were offered in the United States, or to a U.S.-listed company. But he is confident that it sits fine with the U.K.’s rules.

“The service has been looked at in some considerable detail by our risk-management function, and we are entirely comfortable that it is consistent with the ethical guidelines,” Tant says.

However, Jon Grant, executive director of the Auditing Practices Board, which forms part of the Financial Reporting Council and has responsibility for auditing standards, says the rules on this point are about to be reviewed.

The APB’s Ethical Standard 5 bans an accounting firm from providing internal audit services to an external audit client in two situations: if it might end up relying on its own work when auditing the financial statements, or if it might start undertaking management work when it provides the internal audit services.

But the U.K. Parliament’s Treasury Select Committee published a May 2009 report on the banking crisis calling for an “enhanced prohibition on audit firms conducting non-audit work for the same company” and called on the APB to consider a review.

That process will start in a matter of weeks. “The APB consultation will address the totality of non-audit services and will not focus specifically on internal audit although there will be a question about whether APB's existing standards need to be changed,” says Grant.

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