The UK Financial Services Authority (FSA) has
issued a draft code of practice to enhance the dialogue between
auditors and supervisors.
The FSA, who worked jointly with the Bank of
England (BoE), said the aim of the code is to improve audit
effectiveness and ensure supervisors are better informed about, and
able to challenge, the firms they regulate.
The code of practice proposes a framework for
auditors and supervisors to work together in an open and
collaborative way to enhance the ability of the FSA to scrutinise
specific accounting practices and related judgements to understand
their implications fully and highlight emerging problems
Auditors are also expected to gain valuable
insight from dialogue with the FSA when gathering evidence to
support their audit opinions.
Principles in the code of practice cover:
- the nature of the relationship between the
supervisor of a regulated firm and the firm’s external
auditor, - how often and in what form they should be
communicating with each other; and - the way that information should be shared
between them.
For certain firms, the code specifies a
minimum level of formal meetings between the supervisor, the
external auditor and the firm.
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By GlobalDataIt also encourages informal discussions to
help both supervisors and auditors fulfil their responsibilities
towards regulated firms and enhance the effectiveness of the
supervisory and audit process.
“Auditors have an important role to play in
the supervisory process as the annual financial statements that
they audit form the basis of the prudential information that the
FSA uses when supervising firms,” the FSA said.
PwC chairman and senior partner Ian Powell
said the firm welcomes the proposals as it would help both auditors
and regulators benefit from each other’s knowledge and help to
reduce systemic risk in capital markets.
ICAEW chief executive Michael Izza also
supports the draft saying the communication has to be two-way with
supervisors able to access the insights of auditors into the banks
they’re regulating and auditors should be aware of any concerns or
issues regulators have, which may have a bearing on audit
opinions.
“This code of practice starts to redefine the
relationship between auditors and supervisors for the better. In
setting out a clear framework for this two-way dialogue, both
formal and informal, the BoE and FSA have demonstrated how
important it is that all those who play a part in the oversight of
banks and their activities should work more closely together.”
Deadline to comment on the draft is 25
March.
