PRA has evaluated the Written Auditor Reporting policy to assess how it is delivering against its original objectives and how to refine its approach to the policy to make it a more efficient and effective supervisory tool.
The policy was part of the Supervisory Statement 1/16, first published in January 2016, which set out PRA expectations of auditors in relation to the requirement to provide written reports to PRA concerning the audit of major banks and building societies. The policy involves PRA asking questions each year of auditors of the largest UK banks and building societies to which the auditors respond via a private report at the end of their audit. The first auditor reports were received in April 2017.
The aim of the policy was to improve the quality, focus and discipline of the auditor-supervisory dialogue. PRA findings from the evaluation confirms that the policy has met this objective. Cost estimates obtained by the PRA has also been within or below the range envisaged at inception of the policy as it allows flexibility of the key drivers of cost to be varied both year on year and firm by firm.
In terms of improvements to be made to the policy, these include:
- Continuing to ask a low number of questions in future years;
- Asking fewer questions for the firms who are smaller and less complex, relative to the largest and more complex firms;
- Clarifying guidance to auditors about what PRA are looking for in a good response to support shorter, more focused responses from auditors; and
- Setting clearer goals for questions that are repeated to help auditors understand their focus and limit duplication in responses.
PRA has now published its thematic feedback from the 2022/23 round of written auditor reporting, with questions from this year relating to IFRS 9 expected credit loss accounting and accounting for climate-related financial risks.