The Discussion Paper made possible by the joint efforts of Financial Services Authority (FSA) and Financial Reporting Council (FRC) is out for distribution today. The Paper tackles ways on how auditors can contribute more on prudential regulation following the financial crisis.
First, the Paper explores the question on whether the auditor has been sufficiently attentive and inquisitive on indicators of management bias that can be gleaned while examining key areas of financial accounting. Such attentiveness is held to depend critically on management judgment. Second, it also points out the concerns of FSA on the auditor’s work on client assets particularly on his legal obligation to report fraudulent transactions to FSA. Third, it tracks the effects of the recent changes made by the FSA and FRC on how auditors must perform their work in order to determine if these measures have been effective. Lastly, the Paper examines the regulatory environment where auditors work and suggests on how they can contribute to prudential supervision.
FSA and FRC spearheads this discussion because they believe that effective communication between the FSA, on the one hand, and the regulated firms and their auditors, on the other, plays a critical role in achieving market confidence, financial stability and consumer protection, the very objectives of the Authority’s creation. FRC likewise aims to promote high quality corporate governance and reporting for quality investment. On 29 September 2010, the replies to the Paper will be put forth and threshed out.