Recently the FSA issued “Code of Practice for the relationship between the external auditor and the supervisor”. This Code of Practice (the Code) comprises of general guidance made under section 157(1) of the Financial Services and Markets Act 2000 (FSMA).
The Code makes clear the importance the external role has to play in the regulatory framework. It also states that developing and maintaining an “open, cooperative and constructive” relationship between the supervisor and auditor is required to provide an effective regulatory process.
There are three principles set out in the code which are;
Principle 1: Supervisors and auditors shall seek an open, cooperative and constructive relationship
Principle 2: Supervisors and auditors should engage in regular dialogue
Principle 3: Supervisors and auditors shall share all information relevant to carrying out their respective statutory duties in a timely fashion
Key points around the role of the external auditor included in the code are;
- When supervisors commission a regulated firm’s auditors to conduct a skilled persons’ report under section 166 of FSMA6, the scope of the report should first be discussed and agreed with the partner responsible for the section 166 engagement.
- Where the lead audit partner of the firm is not the responsible partner for the skilled persons’ report, the supervisor should consider discussing the scope of the review with the lead audit partner before formal commissioning.
- When a third-party audit firm is commissioned to undertake the section 166 engagement, the supervisory team leader will determine whether to involve the lead audit partner in the scoping of the engagement. The auditor will ordinarily have access to the final scope and findings of the engagement.