The Financial Services Authority (FSA) and the Financial Reporting Council (FRC) have this week issued a discussion paper which considers ways of enhancing auditors’ contribution to regulation.
High quality corporate reporting, audit and assurance support effective governance and underpin market confidence and market discipline. Together with effective communication between the FSA, regulated firms and their auditors, they are critical to achieving the FSA’s objectives relating to market confidence, financial stability and consumer protection. They are also central to the FRC’s complementary objectives in promoting high quality corporate governance and reporting to foster investment.
The purpose of the paper is to stimulate debate on the role of auditors following the financial crisis. The paper therefore explores how the FSA, the FRC and auditors can work together more effectively to enhance auditors’ contribution to prudential regulation.
The paper:
- Questions aspects of the quality of audit work relevant to prudential regulation – in particular, whether the auditor has always been sufficiently sceptical and has paid sufficient attention to indicators of management bias when examining key areas of financial accounting and disclosure which depend critically on management judgement;
- Outlines the FSA’s concerns about auditors’ work on client assets and how auditors fulfil their legal obligation to report to the FSA;
- Explores a variety of ways in which changes are being made and further changes could be made by the FSA, the FRC and auditors to increase the effectiveness with which auditors undertake their work; and
- Examines the regulatory environment in which auditors operate more widely and suggests measures to enhance how auditors contribute to prudential supervision.
The deadline for responses to the discussion paper is 29 September 2010.