The FSA and FRC have published a Feedback Statement summarising the responses to their joint Discussion Paper on enhancing the auditor’s contribution to prudential regulation. The Feedback Statement sets out the FSA’s and FRC’s responses, including the actions that have been taken and the next steps. Actions already taken to enhance the role of auditors include:

  • development of a draft code of practice by the FSA, alongside the Bank of England, designed to enhance the dialogue between auditors and supervisors
  • increased dialogue between the FSA and auditors, individually and collectively, to discuss key financial reporting issues
  • increased and more effective use by the FSA of section 166 skilled person reporting
  • formalisation of co-operative arrangements between the FSA and the FRC’s Audit Inspection Unit, in a memorandum of understanding.

This feedback is linked to the APB feedback on Auditor Scepticism (above). Both the FSA and the FRC expect these measures to contribute to effective auditing and higher quality disclosures. Following the current financial reporting season, the FSA and the FRC will evaluate the effectiveness of increased engagement with auditors, the quality of disclosure in annual reports and application of professional scepticism by auditors and will provide further feedback to auditors and firms.