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Audit reports – reporting to financial services regulators. Storyboard for. …clear thinking. By completing this module you will be able to: Describe in outline the difference between the two new financial regulatory bodies

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Storyboard for

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  1. Audit reports – reporting to financial services regulators Storyboard for

  2. …clear thinking

  3. By completing this module you will be able to: Describe in outline the difference between the two new financial regulatory bodies Explain the significance of the client assets report and outline its contents Explain the context in which auditors must make a report to regulators under International Standard on Auditing 250 section B At the end, you can visit useful Internet sites on a “Web Ride” Lecturer: David Duvall Learning time: approx. 15 mins. How to use this learning module? - Click on "Help" in the Table of Contents (TOC) Audit reports – reporting to financial services regulators Graphic: [presenter or standard graphic]

  4. From 1 Apr 2013 the functions of the Financial Services Authority were taken over by: the Prudential Regulation Authority (PRA) Asubsidiary of the Bank of England Responsible for the prudential supervision and regulation of banks, building societies, credit unions, insurers and investment firms and the Financial Conduct Authority (FCA) Independent body Responsible for regulation of conduct in retail, as well as wholesale, financial markets Also responsible for the prudential regulation of firms that do not fall under the PRA’s scope The two new financial regulators Graphic: [PRA and FCA logos]

  5. Client assets (FCA only) Sources: FCA Handbook SUP 3.10 FCA Client Assets Sourcebook (CASS) APB Bulletin 2011/2 APB Practice Note 21 Any matter of material significance (FCA and PRA) Sources: FSMA 2000 (Communication by Auditors) Regulations 2001 ISA 250 Section B APB Practice Note 21 Reports required from auditors Graphic: [an expensive fountain pen]

  6. Protection of clients’ assets is one of the basic principles prescribed by both FCA and PRA But report required only by FCA (not PRA) for businesses under its supervision Full report for those holding clients’ assets Limited assurance report for those that don’t Period covered must be no more than 53 weeks Report to be delivered to the FCA within 4 months of the period end Reporting on client assets - general Graphic: [an apple and a pear]

  7. Part 1 – auditor’s opinion as to whether the requirements of the FCA Handbook have been met Part 2 – schedule of any breaches of the requirements (nil return if no breaches) Any breach requires a modified opinion – ‘except for’ or adverse depending on the significance of the breach(es) Reporting on client assets – contents of report Graphic: [a series of ticks and crosses]

  8. These are matters of which the auditor become aware during the ordinary course of the audit work No additional work or specific search for breaches of the requirements is necessary Criteria per APB PN 21: material contravention of requirements a person/ business may not satisfy the threshold conditions a person/ business may not be a going concern the auditor has issued a modified audit report on the business’s accounts Matters of material significance - general Graphic: [road sign: Hazard („!“)]

  9. Set out in ISA 250 Section B: name of entity statutory power under which report made report in accordance with ISA 250 Section B context of report matter giving rise to the report request for confirmation of receipt by regulator name of auditor date of report Examples of reportable items are in Appendix 6 of PN 21 Matters of material significance – contents of report Graphic: [Financial Reporting Council]

  10. The FCA and PRA can take various actions to enforce their regulations e.g.: prohibiting individuals from carrying on regulated activities suspending firms or individuals from undertaking regulated activities fining firms or individuals who breach our rules or commit market abuse applying to the Court for injunctions and restitution orders bringing criminal prosecutions to tackle financial crime, such as insider dealing or unauthorised business What happens if the rules are broken? Graphic: [football referee with red card]

  11. The regulations exist because of the nature of financial services products consumers don’t know that the product is defective until it’s too late Auditors need a level of experience and expertise to know when and what to report If a business holds clients’ assets and conceals their ownership, it’s by no means certain that the auditor will discover the true facts As always, regulations can go only so far and cannot prevent human error and fraud Are the rules effective? Graphic: [big question mark]

  12. The key things to remember from this module are: The respective areas of supervision of the FCA and PRA The reasons for and contents of reports by auditors on clients’ assets The reasons for, and contents of, reports on matters of material significance Summary Graphic: [standard summary graphic]

  13. Web Ride

  14. …clear thinking

  15. Please select the correct answer(s) and then click on “Submit”. To whom must an auditor report on a regulated business’s clients’ assets? The Financial Services Authority The Financial Conduct Authority The Prudential Regulation Authority The Registrar of Companies Question 1

  16. Please select the correct answer(s) and then click on “Submit”. An investment business tells its auditor that it does not hold any clients’ assets. In terms of reporting to the FCA, what does the auditor need to do? No need to report at all Make a full report that systems are adequate and that relevant rules have been complied with Prepare a limited assurance report Report the business to the FCA for suspected fraud Question 2

  17. Please select the correct answer(s) and then click on “Submit”. Which of the following would NOT necessarily cause an auditor to report a regulated business to the relevant regulator under ISA 250 Section B? The business is in danger of becoming insolvent The annual accounts do not comply with the Companies Act 2006 The business has contravened a requirement in the FCA Handbook The business is facing an imminent takeover Question 3

  18. You have now finished this module and acquired basic knowledge on reporting to the financial services regulators If you answered all the questions in the Quiz correctly, you can print out your personal certificate by clicking on the link Thank you for your attention! Finish Graphic: [standard finish graphic]

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