UK: auditors' contribution to prudential regulation - FRC and FSA issue joint discussion paper

The Financial Reporting Council and Financial Services Authority have today issued a joint discussion paper - available here (pdf) - the purpose of which is to start a debate on how the FSA, FRC and auditors can work together to enhance auditors' contribution to prudential regulation.

The paper makes clear the view of the FSA and FRC that auditors need to challenge management more. In chapter 3, for example, the paper notes (para. 3.9 and 3.10):

In some cases the FSA has seen concerning valuations, provisions and disclosures, the auditor’s approach seems to focus too much on gathering and accepting evidence to support managements’ assertions, and whether managements’ valuations and disclosures comply with the letter of accounting standards, rather than whether the standards’ requirements have been applied in a thoughtful way that would better meet the standards’ objectives. In some areas, it can be questioned whether auditors always exhibit sufficient professional scepticism".