Failings have been found in how auditors report and check on client assets
held by investment institutions, according to the Financial Services Authority.
The authority wants to improve the quality and constituency of auditors’
reports on client assets held by FSA-governed institutions.
FSA’s findings have been sent to the ICAEW and accounting
disciplinary body the Accountancy & Actuarial Discipline Board (AADB).
It has launched the consultation having found what it describes as “material
failings and weaknesses” in a number of audits.
These problems include: clean audit reports despite the investment business
having committed breaches of client asset rules; auditors’ reports covering the
wrong chapters of the FSA’s Client Assets Sourcebook (CASS); failure to provide
a report because the auditors was unaware or did not understand the reporting
requirements; failing to provide details of issues and problems they have found,
reports submitted late and “simple errors” such as failing to sign the report or
quoting the wrong FSA reference number.
Ten points of improvement have been outlined in the FSA’s consultation, to
improve the quality and consistency of their reporting plus stronger oversight
of auditors’ actions.
“It is ultimately a firm’s responsibility to ensure that they have adequate
systems in place, but they, as we, rely on their auditors to provide the
necessary assurance in this regard. Auditors charge a fee for this professional
service – it is important that we and firms can rely on the reports they are
signing off,” said Richard Sutcliffe, FSA’s client assets sector leader.
Failure to improve will be punished with “more action”, he added.
The Treasury outlined concerns over investment banks’ audit arrangement
around client assets, in December 2009.
MiFID regulation sets out that member states shall require investment firms
to ensure that external auditors report at least annually on the adequacy of the
investment firm’s arrangements for complying with the relevant requirements of
MiFID in relation to its client money and assets.
The consultation closes on 31 December.
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