The Role of Auditors

As was mentioned in Regulatory Roundup 16, the FSA was proposing to consult on enhancements to auditor’s reporting on client assets.

As you will know, even where a firm does not hold client money or client assets, SUP 3.10.4R basically requires the firm’s auditor to confirm to the FSA that this is indeed the case and that they have not seen any evidence to make them think otherwise.

A review of auditor’s reports by the FSA revealed various failings including covering the wrong chapters of CASS; not realising that they had to provide reports to the FSA; and providing clean reports when in fact there had been significant failings of the client assets rules.

CP10/20 – “Improving the auditor’s report on client assets” has now been published by the FSA.

Where a firm is not holding client money and/or assets the auditor will have to ensure that the report in SUP 3.10.4 is prepared in accordance with the terms of a ‘limited assurance engagement’ (and where a firm is holding client money and/or assets then ‘reasonable assurance engagement’ will be applicable – both terms are defined with reference to the Auditing Practices Board’s Standards and Guidance).

Such reports have had to be submitted to the FSA ‘within a reasonable time’. This will now change to ‘within four months’ (this time limit was previously guidance).

A change that will impact upon firms is the addition of SUP 3.11. This will require firms to review the draft auditor’s assets report with the final client asset report being reported to the firm’s governing body.

The consultation period ends on 31 December.

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