UK FSA: code of practice for the relationship between the external auditor and the supervisor

Comments from ACCA to the Auditing Practices Board, October 2010.

ACCA is pleased to respond to the consultation on the proposed guidance Code of Practice for the relationship between the external auditor and the supervisor (the Code of Practice) including the impact analysis in the paper Market and regulatory failures, benefits and costs.

In our response to the earlier joint discussion paper Enhancing the Auditor’s Contribution to Prudential Regulation we expressed the view that it is vital for the FSA to build relationships with auditors that promote collaboration rather than separate working.  We supported engagement at an early stage and concluded that, for high impact firms, trilateral meetings would be beneficial.  We are pleased to be able to support, therefore, the proposed Code of Practice which we believe sets out appropriate principles for the relationship between the external auditor and the supervisor.

We support the intention of Principle 2 but suggest that it could be better worded to emphasise the objective of the dialogue rather than its regularity.  Regularity is emphasised by the inclusion of specific requirements for high and very high impact firms and it is this principle in particular where the document perhaps does not pay sufficient attention to the fact that it applies to all firms.  That might be addressed by extending the first paragraph, and moving the section 166 material before the material for high and very high impact firms, but you will no doubt have regard to responses from others as to whether our perception is widespread, or otherwise of significance.

We suggest the following redrafted wording, using the ‘Auditors and supervisors shall...' construction of the other principles:

Principle 2: Supervisors and auditors shall communicate all information relevant to fulfilling their respective statutory duties

If this suggestion is accepted we also suggest that principle 3 could be shortened as follows:

Principle 3: Supervisors and auditors shall communicate information on a timely basis

The two principles are currently closer, in that regularity can be part of timeliness, and it may be that the material in the paragraphs relating to each principle could be repositioned under a different principle, however, we do not make further suggestions in that regard.