The aim of the draft code, put out for consultation, is to improve audit effectiveness and ensure that supervisors are better informed about, and able to challenge, the firms they regulate.
The FSA believes that auditors have an important role to play in the supervisory process as the annual financial statements they audit form the basis of the prudential information that the FSA uses when supervising firms.
The code of practice proposes a framework for auditors and supervisors to work together in an open and collaborative way. This increased coordination will enhance the ability of the FSA to scrutinise specific accounting practices and related judgements in order to understand fully their implications and to highlight emerging problems. Equally, auditors are expected to gain valuable insights from their dialogue with the FSA when gathering evidence to support their audit opinions.
Principles are set out in the code for auditors and supervisors to follow when they deal with regulated firms. These cover the nature of the relationship between the supervisor of a regulated firm and the firm's external auditor, how often and in what form they should be communicating with each other and the way that information should be shared between them.
For certain firms, the code specifies a minimum level of formal meetings between the supervisor, the external auditor and the firm. It also encourages discussions through informal channels to help both supervisors and auditors fulfil their responsibilities towards regulated firms and enhance the effectiveness of the supervisory and audit process.
Commenting, Richard Thorpe, FSA auditing and accounting sector leader said: "The FSA and its successor organisations, as supervisors, need to have confidence in audited financial information to ensure that we are making informed judgements and the right decisions when supervising firms.
The code announced today will help us to achieve this and makes it more likely that auditors will identify issues and risks that relate to our objectives of market confidence and financial stability."
