Consultation on Client asset reporting by auditors

In September 2010, the FSA issued a consultation paper (CP 10/20) entitled "Improving the auditor's report on client assets". This was principally in response to concerns that the FSA had with regard to firms' handling of client assets (which were addressed in their Client Money and Asset Report issued in January 2010) and also due to issues arising through their supervisory work which gave evidence of material weaknesses in some auditors' reports on client assets.

In the consultation paper the FSA states its objectives as to:

• confirm and clarify the standards required for the auditors' reports on client assets
• increase and make consistent the information provided within the auditors' reports to enhance its supervisory value
• improve firms' governance oversight of both their auditor's and their compliance with CASS

There are a number of proposed amendments to the Supervision Manual, which will detail a more clarified role for the auditor, with explicit requirements to be set out in the rules.

The key proposed amendments impacting firms themselves are that they will be required to set out comments on actions taken (if any) and/or mitigating factors associated with breaches that their auditor has cited and also for their governing bodies to consider their auditor's findings on client assets.

It is also worth noting that the Mandate rules (CASS 8) will be brought back within the scope of the auditor's report on client assets.

A policy statement is expected in the first quarter of 2011.