Kevin Reed, Accountancy Age, Monday 27 September 2010 at 15:07:00

Auditors must improve their work around checking client assets heldinvestment firms or face the consequences, says the FSA


Failings have been found in how auditors report and check on client assetsheld by investment institutions, according to the Financial Services Authority.

The authority wants to improve the quality and constituency of auditors'reports on client assets held by FSA-governed institutions.

TheFSA's findings have been sent to the ICAEW and accountingdisciplinary body the Accountancy & Actuarial Discipline Board (AADB).

It has launched the consultation having found what it describes as "materialfailings and weaknesses" in a number of audits.

These problems include: clean audit reports despite the investment businesshaving committed breaches of client asset rules; auditors' reports covering thewrong chapters of the FSA's Client Assets Sourcebook (CASS); failure to providea report because the auditors was unaware or did not understand the reportingrequirements; failing to provide details of issues and problems they have found,reports submitted late and "simple errors" such as failing to sign the report orquoting the wrong FSA reference number.

Ten points of improvement have been outlined in the FSA's consultation, toimprove the quality and consistency of their reporting plus stronger oversightof auditors' actions.

"It is ultimately a firm?s responsibility to ensure that they have adequatesystems in place, but they, as we, rely on their auditors to provide thenecessary assurance in this regard. Auditors charge a fee for this professionalservice ? it is important that we and firms can rely on the reports they aresigning off," said Richard Sutcliffe, FSA?s client assets sector leader.

Failure to improve will be punished with "more action", he added.

The Treasury outlined concerns over investment banks' audit arrangementaround client assets, in December 2009.

MiFID regulation sets out that member states shall require investment firmsto ensure that external auditors report at least annually on the adequacy of theinvestment firm?s arrangements for complying with the relevant requirements ofMiFID in relation to its client money and assets.

The consultation closes on 31 December.