Banking sector warned about auditing

Banks are being reminded that must ensure they are audited by accountants who met the required standard.

The Financial Reporting Council (FRC) has revealed that its latest annual audit quality inspections report has showed an improvement in the audits of listed companies but there are still changes needed to ensure banks are following the correct procedures.

“The overall grading of bank and building society audits is, and continues to be, generally below those of other types of entity,” the FRC said.

Audits from five banks and five building societies were regarded as good but 56 per cent were found to need improvement.

One of the key points raised by the FRC was a lack of improvement to the way in which accountants checked banks set aside capital to cover potential bad loans.

“Weaknesses in the testing of loan impairment models and related assumptions were key issues,” the FRC said in the report.

“Insufficient challenge of management or the failure to obtain further evidence to support provisioning judgements were common themes in the issues identified.”

The UK’s big banks are audited by one of the view so-called Big Four accounting firms – Deloitte, PwC, KPMG or EY.

“The FRC’s report provides a balanced view of the focus and results of its inspection, and we agree with its overall conclusions and findings,” Deloitte said.

KPMG confirmed that auditors will have to improve their standards and that it would continue to work towards producing good quality audits.

PwC added that it has already put in place an action plan to follow the recommendations made by the FRC.

The European Union is currently proposing new rules that will mean companies will have to change their accountants on a regular basis to avoid the development of too cosy’ relationships.

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