Watchdog to shame worst bank auditors

Tim Wallace
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THREE banks and three auditors have failed a set of tests set by the Financial Reporting Council (FRC), which reviewed their audits, it said today.

The audit watchdog fears banks are failing to consistently measure and report loan-loss provisions.

Four of the seven auditors reviewed have improved the quality of their work, making sure they have staff who understand banks and their IT systems more thoroughly.

But the FRC is not disclosing which ones performed poorly – stopping the market and the firm’s shareholders knowing which ones are falling below standard.

It hopes that it will be able to tell the shareholders in future.

However, the FRC is concerned that some investors could mistake the grade given to the audit itself for a grade given to the quality of the bank and its books.

Meanwhile, the watchdog also found several banks were slipping below the standards expected of them.

Two subsidiaries of foreign banks were found to need “significant improvements”, while another bank’s audit needed a lesser degree of im­provement.

The FRC said the auditors needed to work harder to challenge management’s view of the accounts, rather than seek to corroborate them.

It also said auditors needed to be better trained, and should go through their risk assessments to make sure they capture all regulatory and market risks properly.

“On a number of audits we identified examples of thorough, probing audit work with evidence of challenge and review, yet on the same audits found examples of inadequate follow-up of issues raised by the audit team,” the report said.

“These included conflicting evid­ence on a loan review or queries raised by IT or property valuation specialists that had not been followed up or resolved satisfactorily.”