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ICAS research report supports strengthening of the relationships between auditors and supervisors of financial services firms

  • ICAS (Institute of Chartered Accountants of Scotland) (lt green) Image

02 Jul 2015

A research report published by the Institute of Chartered Accountants in Scotland (ICAS) supports strengthening of the relationships between auditors and supervisors of financial services firms.

The research has been undertaken in the context of concerns raised in the wake of the financial crisis regarding the role of auditors, supervisors and the nature of financial risk.  One of the initiatives post the financial crisis was to re-establish the links between supervisors of financial services firms and their auditors.  The research, which was undertaken in three stages, focused on three areas; liaison between auditors and supervisors; monitoring and reporting of risk; and accounting and auditing judgements in financial services audit. 

The report Audit, Supervision and Risk in Financial services finds that there is “widespread support” for strengthening the relationship between auditors and supervisors, acknowledging that this will be an “evolving process”.  The findings of the research are linked to current developments for change including the Prudential Regulation Authority (PRA) consultation on interaction of the PRA with external auditors and actuaries and the changes to audit reports brought about by the Financial Reporting Council.

The report makes a number of recommendations intended to strengthen the relationship between auditors and supervisors and to provide stakeholders with key information about the dialogue between them including:

  • Supporting the PRA’s proposal that the external auditors of each of the largest UK-headquartered banks and building societies (those with a balance sheet total in excess of £50bn or are members of groups with a balance sheet total in excess of £50bn) that are not subsidiaries of non-UK firms should be required to provide a written report to the PRA as part of the statutory audit of that firm.  The PRA proposes that the written report will consist of answers to specific questions set out in advance by the PRA, designed to gather qualitative information about key judgement areas within the audit.
  • Requiring auditors of financial services firms to include a discussion of the dialogue they have had with supervisors in the new extended auditors report.
  • Recommending that a summary of the key accounting, auditing and regulatory topics discussed between the audit firms and the PRA is published to provide transparency of discussions with financial services firms, investors and wider stakeholder groups.

The press release and full report are available on the ICAS website.

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