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SUP 3.9 Duties of auditors: reports on certain investment business firms

Purpose

SUP 3.9.1G

The types of firm which an auditor is required to report on in this section generally have businesses and assets of a nature which lend themselves well to the use of standardised reports by auditors as a supervisory tool. To assist its supervision, the FSA therefore requires an auditor's report on these firms' financial statements and regulatory reporting in the format in SUP 3.9.5 R as a means of obtaining information about the firm's financial position, and the quality of its regulatory reporting.

Application

SUP 3.9.2R

In addition to those excluded under SUP 3.1, SUP 3.9 does not apply to the auditor of:

  1. (1)

    a lead regulated firm; or

  2. (2)

    an incoming Treaty firm, which does not have a top-up permission.

SUP 3.9.3R

Where this section requires the auditor of a firm to report on a firm's compliance with rules, this section applies to the auditor only to the extent that the firm is required to comply with the relevant rules.

The auditor's report: content

SUP 3.9.4R

An auditor of a firm must:

  1. (1)

    submit a report addressed to the FSA, signed in his capacity as auditor, which states the matters set out in SUP 3.9.5 R;

  2. (2)

    in preparing a report to the FSA under (1), carry out such investigations as are reasonably necessary in order to form an opinion as to the matters required to be stated in the report; and

  3. (3)

    submit a letter to the firm annually commenting on the firm's internal controls or stating that he has no such comments, whichever is appropriate; such a letter need only cover matters which have come to the auditor's attention while undertaking the work to produce the reports required by (1) or SUP 3.10.4 R.

SUP 3.9.5R

Auditor's report

1

whether the auditor has:

(1)

audited the firm's annual financial statements in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board;

(2)

carried out such other procedures as he considered necessary, having regard to the relevant Auditing Practices Board's Practice Note; and

(3)

obtained all the information and explanations which to the best of his knowledge and belief are necessary for the purposes of his report to the FSA; and

whether in the auditor's opinion:

(4)

except in the case of an OPS firm, the audited annual financial statements of the firm give a true and fair view:

(a)

in the case of the profit and loss account, of the firm's profit or loss for the period to which that account relates; and

(b)

in the case of the annual balance sheet, of the state of the affairs of the firm at the accounting reference date at which that balance sheet was prepared;

(5)

in the case of an OPS firm, the audited annual financial statements give a true and fair view of the state of affairs:

(a)

in the case of the statements of the firm, of the firm at theaccounting reference date of the firm; and

(b)

in the case of any OPS collective investment scheme in relation to which the firm carries on OPS activities, of the OPS collective investment scheme at the accounting reference date of the scheme;

(6)

the relevant financial reporting statement has been properly prepared in accordance with the FSA's rules, the relevant financial reporting statement being, in the case of:

(a)

an investment management firm: the annual financial return (see SUP 16.7.36 R); or

(b)

a personal investment firm: the annual financial statement (see SUP 16.7.45 R ); or

(c)

a securities and futures firm: the annual reporting statement (SUP 16.7.25 R or SUP 16.7.27 R);

(d)

a UCITS management company: the annual financial return (see SUP 16.7.68 R);

(7)

the balance sheet and the profit and loss account of the relevant financial reporting statement in (6) are in agreement with the firm's accounting records and returns;

(8)

in the case of:

(a)

a personal investment firm; or

(b)

a securities and futures firm;

the balance sheet of the relevant financial reporting statement in (6) has been properly reconciled to the quarterly reporting statement or monthly reporting statement prepared as at the same accounting reference date;

(9)

in the case of a securities and futures firm, the balance sheet of the annual reporting statement has been properly reconciled to the balance sheet of the audited annual financial statements;

(10)

the firm (not being a corporate finance advisory firm or an OPS firm) has calculated its expenditure requirement in accordance with the relevant rules for the forthcoming year, the relevant rules being, in the case of:

(a)

an investment management firm: IPRU(INV) 5.2.3R (4), IPRU(INV) 5.2.4R;

(b)

a category A personal investment firm (see SUP 3.9.6 R): IPRU(INV) 13.2R and IPRU(INV) 13.5R;

(c)

a category B personal investment firm (see SUP 3.9.6 R, IPRU(INV) 13.9R and IPRU(INV) 13.12R);

(d)

a securities and futures firm which is not an ISD investment firm: IPRU(INV)3-70R, IPRU(INV)3-71R and IPRU(INV)3-73R;

(e)

a securities and futures firm which is an ISD investment firm: IPRU(INV)10-71R, IPRU(INV)10-72R and IPRU(INV)10-73R;

(f)

a UCITS management company: IPRU(INV) 7.2.3R and IPRU(INV) 7.2.4R;

(11)

the firm's statement of financial resources, and the firm's statement of financial resources requirement, have been properly prepared in accordance with the rules;

(12)

the firm's financial resources at the accounting reference date are sufficient to meet the firm's financial resources requirement;

(13)

the firm has kept proper accounting records in accordance with the rules throughout its financial year, the relevant rules being, in the case of:

(a)

an investment management firm: IPRU(INV)5.3.1R;

(b)

a personal investment firm: IPRU(INV)13.1.11-13.1.16R

(c)

a securities and futures firm which is not an ISD investment firm: IPRU(INV)3-10R;

(d)

a securities and futures firm which is an ISD investment firm IPRU(INV)10-10R; (except IPRU(INV)10-10R(3)(m)-(n))

(e)

a UCITS management company: IPRU(INV)7.4.1R;

(14)

if the firm prepares a consolidated supervision return1 at its accounting reference date, that it has been prepared in accordance with the rules.

1
SUP 3.9.6R

In SUP 3.9.5 R(10)(b) and (c), a "Category A personal investment firm" is a personal investment firm which is an ISD investment firm and a "Category B personal investment firm" is a personal investment firm other than a category A personal investment firm.

The auditor's report: timing of submission

SUP 3.9.7R

An auditor of a firm must submit a report under SUP 3.9.4 R (1) after each accounting reference date of the firm and so as to be received by the FSA within:

  1. (1)

    in the case of an auditor of a securities and futures firm, three months of the firm's accounting reference date;

  2. (2)

    in the case of an auditor of a personal investment firm, a UCITS management company or an investment management firm, four months of the firm's accounting reference date.

SUP 3.9.8R

If an auditor is unable to report to the FSA within the timetable set out in SUP 3.9.7 R, the auditor must notify the FSA and advise the FSA of the reasons why it has been unable to meet the requirements of SUP 3.9.7 R.

The auditor's report: requirements not met or inability to form opinion

SUP 3.9.9R
  1. (1)

    If the report under SUP 3.9.4 R (1) states that one or more of the applicable requirements described in SUP 3.9.5 R(4) to (14) have not been met, the auditor must specify in the report those requirements and the respects in which they have not been met.

  2. (2)

    If an auditor is unable to form an opinion as to whether one or more of the applicable requirements described in SUP 3.9.5 R(4) to (14) have been met, the auditor must specify in the report under SUP 3.9.4 R (1) those requirements and the reasons why the auditor has been unable to form an opinion.

Method of submission of reports

SUP 3.9.10R

An auditor of a firm must submit a report under SUP 3.9.2 R (1) in accordance with the rules in SUP 16.3.6 R to SUP 16.3.13 R as if those rules applied directly to the auditor.

Service of Notice Regulations

SUP 3.9.11G

The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contains provisions relating to the service of documents on the FSA. They do not apply to reports required under SUP 3.9 because of the specific provisions in SUP 3.9.10 R.