UK FSA Code of Practice. The relationship between supervisors and external auditors

Transcription

1 The relationship between supervisors and external auditors Robert Konowalchuk, 30

2 Agenda 1. Background 2. Overview of FSA guidance 3. Benefits and challenges Slide 2

3 1. Background Events leading up to the code 2008 crisis ; bank failures FSA self-assessment on supervisory processes Supervisory Enhancement Programme Government criticism re interaction with auditors Code of Practice developed and issued (March 2011) Slide 3

4 1. Background Regulatory philosophy As a complement to the work of its own risk specialists, the PRA will enhance the role of third parties in mitigating prudential risk and preserving financial stability... In particular, they can identify and flag to the regulator potential weaknesses... The PRA will increase the level of formal and informal dialogue with auditors, at senior and working level, in an open and collaborative way. (PRA launch document) The FCA will take forward the FSA s view that firms auditors can and should play a role in supporting prudential and conduct supervision. (FCA approach to regulation) Slide 4

5 2. Overview of FSA guidance Over-arching principles Objectives More effective supervision Enhanced audit quality Respective responsibilities Management producing reliable financial reports Supervisors regulatory supervision of firms, making use of financial reports Auditors assuring the reliability of financial reports Proportionality Not one size fits all Size, risk, complexity of firm affects nature of relationship and frequency of dialogue Slide 5

6 2. Overview of FSA guidance Specific Principles: Supervisors and auditors should... Nature of relationship Form and frequency of interaction Responsibilities and scope for sharing information...seek an open, cooperative and constructive relationship...engage in regular dialogue and...share all information relevant to carrying out their respective duties...respect their duty to treat information shared between the two parties confidentially Slide 6

7 2. Overview of FSA guidance Frequency of interaction The principles of the code apply to all institutions; but the application is proportionate Very high impact Multiple bilateral meetings per year One tri-lateral meeting per year Aligned to audit cycle High impact At least one bilateral meeting per year The rest Less structured interaction Sharing of key audit / supervisory outputs Slide 7

8 3. Experience to date Benefits and challenges Benefits Challenges Mutual understanding Better informed audit planning and risk assessment Enhanced supervisory judgments Guarded/defensive behaviour Risk management Expectation gap Inconsistent audit/supervisory approaches Trust and relationship building Leverage with management Timeliness Slide 8

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