How good is your CASS auditor?

07 January 2019

In a recent speech to the ICAEW, Charles Randell, Chair of the Financial Conduct Authority (FCA) stressed that FCA rules require senior management to take reasonable steps to ensure that their CASS auditor has the required skill, resources and experience to perform its functions. However, the FCA remains concerned that some audit firms have not invested sufficiently in building their knowledge and understanding of the Client Asset Sourcebook (CASS) Rules and the FRC Client Asset Assurance Standard. In Mr Randell’s own words: “We continue to see Client Assets reports that are just not good enough”.

So what steps should a regulated firm take to perform ‘due diligence’ over their CASS auditor’s capabilities; and how do you assess the responses? PwC have produced a generic document setting out the processes they follow to ensure the competency of their CASS engagement teams. The checklist below provides an outline for regulated firms to obtain relevant information and then, most importantly, to document their evaluation and conclusions.

  • What experience / understanding does the auditor have of the regulated firm’s industry sector and activities?
  • Are the engagement staff suitably trained: in auditing and in CASS?
  • Does the auditor have a clear methodology and plan for performing the work?
  • Are the auditor’s views on technical matters robust and applied consistently?
  • Does the auditor understand the impact of their report and the regulator’s perspective?
  • Does the auditor have knowledge of good industry practice for relevant peer firms?
  • Is there a process to resolve any disagreements?
  • Is the quality of the auditor’s work independently reviewed?
  • Does the auditor have sufficient time and resources to complete all the procedures which are considered necessary?

The various points above should be considered for the audit firm as a whole, the individuals assigned to the engagement or both, as appropriate. The first point is critical. Although it’s not directly about client assets, a clear understanding of the industry in which the investment firm operates is essential if the auditor is to properly assess the CASS implications. This understanding then needs to be paired with a knowledge of the rules and an appreciation of how they can, and should, be applied in practice. It is this three-way combination which creates the sweet-spot where the CASS auditor can properly perform their duties and add real value to the investment firm.

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The final question on resources is a serious one, because ultimately it impacts the fees paid by the investment firm. At a recent industry forum, one CF10A noted that CASS fees following the introduction of the FRC assurance Standard have increased several times over; and in some cases are now more than the statutory audit. This reflects the reality that the scope of the CASS opinion is significantly greater than a statutory opinion on financial statements. The CASS report contains both a controls assurance opinion on the operation of systems throughout the period, and a substantive opinion on compliance with anything up to 250 individual rules.

 

Chris Sermon

Chris Sermon | Senior Manager
Profile | Email | +44 (0)7834 254567

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