FSA, FRC Join Hands to Extend Sharing of Audit Information
Two regulators in the financial services industry have entered into a new Memorandum of Understanding (MOU) today that extends the scale in which they exchange audit information.
The Financial Services Authority (FSA) and the Financial Reporting Council (FRC) can now work closely together in overseeing the audits of key players in the accounting industry. Specifically, the new MOU “underpins the increased dialogue between the FSA and FRC on accounting and disclosure issues that have been in place since 2005,” the FRC said.
The Financial Reporting Council added that the MOU “follows the publication of a joint discussion paper on the audit of financial institutions published in June 2010.”
Richard Thorpe, FSA’s accounting and auditing sector leader, said the recent discussion paper has raised concerns that some auditors do not exercise enough “professional skepticism” when taking an approach to audits of “key areas of management judgement.”
“This MOU is a public statement of the way we will share information with the Audit Inspection Unit at the FRC. Sharing information with the FRC will go someway to mitigating our concerns,” Thorpe said.
FRC’s Audit Inspection Unit (AIU), which “operates a risk-based system” of overseeing the audits of accounting firms, has been given a leverage to cover the banks incorporated in UK to shore up prudential regulators and markets. With the new MOU, it can now function closely with the FSA to improve the “oversight of the audits of authorized firms.”
The new MOU provides that FRC and FSA will exchange timely audit information which will remain subject to legal constraints, and with which the regulators are required to act in accordance if confidentiality demands so.
Paul George, Director of Auditing at the FRC, said the “agreement ensures that the dialogue established during the financial crisis is both durable and meaningful” while stressing that prudential regulators must be provided with “relevant and high quality information” in the audit reports.
By working with the FSA, FRC can now patch the weaknesses found in the audits provided to regulators and the market, George said.
Two months ago Securities and Exchange Commission Chairman Mary L. Schapiro met UK Financial Services Authority (FSA) Chairman Adair Turner and Chief Executive of the UK Financial Reporting Council (FRC) Stephen Haddrill to address issues concerning regulatory.