FSB to reform external audits of financial institutions

The Financial Stability Board (FSB) is pressing for more action to improve external audits of banks, insurance companies and securities firms. The aim is to ensure that regulators around the world receive more information from external audits, particularly from the audits of systemically important financial institutions.

The FSB, which was set up to coordinate at international level the work of national financial authorities and international standards-setters, believes external audits – when conducted to a high standard and providing sufficient information to supervisors – can help provide prudential supervisors and regulators with important information to fulfill their tasks.

"Work to improve audit practices and standards is ongoing, with some regulators and auditing standards-setters having issued finalised guidance on certain audit issues, and proposals in some other jurisdictions are subject to public consultation," the FSB says. "In view of the global nature of markets, financial institutions and audit firms, greater international consistency in external audit practices and requirements will be important while continuing to promote their high quality."

The FSB says it plans to provide input to the Basel Committee on Banking Supervision's ongoing work into revising its external audit policy papers to ensure the audits provide sufficient information disclosure to oversight bodies. The Basel Committee's proposed new rules are expected to be published at the end of this year. The FSB says it will carry out similar work with the International Association of Insurance Supervisors, but offered no timeline for the likely introduction of new external audit guidelines for insurers.

The FSB adds that it also plans to reinforce the effectiveness of audit regulation, to improve audit quality. The FSB has requested the help of the International Forum of Independent Audit Regulation to carry out this work. It also encouraged bodies such as the International Audit and Assurance Standards Board and national standards-setters to improve standards on information that external audits provide to investors and other users of financial reports. "It will be important to seek high-quality standards that enhance audit practices, and to the extent possible, improved international consistency. Iosco [the International Organization of Securities Commissions] has agreed to monitor developments in this area and provide updates to the FSB on progress."