CRED 14.3 Auditors

This section and SUP 3 apply to all credit unions and their external auditors appointed under SUP 3.3.

This section is a summary of SUP 3, and sets out guidance on the role auditors play in the FSA's monitoring of credit unions' compliance with the requirements and standards under the regulatory system.

SUP 3.3.2 R states that a credit union must:

1. (1)

   appoint an auditor to undertake the duties and responsibilities set out in SUP 3.8 (summarised in CRED 14.3.22 GCRED 14.3.31 G);

2. (2)

   notify the FSA, without delay, when it is aware that a vacancy in the office of auditor will arise or has arisen, giving the reason for the vacancy;

3. (3)

   appoint an auditor to fill any vacancy in the office of auditor which has arisen;

4. (4)

   ensure that the replacement auditor can take up office at the time the vacancy arises or as soon as is reasonably practicable after that; and

5. (5)

   notify the FSA of the appointment of an auditor, advising the FSA of the name and business address of the auditor appointed and the date from which the appointment has effect.

A credit union is also under an obligation to appoint an auditor under the Friendly and Industrial and Provident Societies Act 1968, but a single auditor may be appointed for both purposes (See CRED 14 Annex 1 G). 1

SUP 3.4 sets out rules and guidance aimed at ensuring that the auditor of a credit union has the necessary skill and experience.

SUP 3.4.2 R states that before a credit union appoints an auditor, it must take reasonable steps to ensure that the auditor has the required skill, resources and experience to perform his functions under the regulatory system and that the auditor is eligible under Friendly and Industrial and Provident Societies Act 1968.

SUP 3.4.5 R states that a credit union should have regard to whether its proposed auditor has expertise in the relevant requirements and standards, and possesses or has access to appropriate specialist skill. The credit union should seek confirmation of this from the auditor concerned.

A credit union must not appoint as auditor a person who is disqualified by the FSA under section 345 of the Act (Disqualification) from acting as an auditor either for that credit union or credit unions in general.

If it appears to the FSA that the auditor of a credit union has failed to comply with a duty imposed on him under the Act, it may disqualify him under section 345 of the Act.

SUP 3.4.7 R states that a credit union must take reasonable steps to ensure that an auditor, which it is planning to appoint or has appointed, provides information to the FSA about the auditor's qualifications, skills, experience and independence in accordance with the reasonable requests of the FSA.

To enable it to assess the ability of an auditor to audit a credit union, the FSA may seek information about the auditor's relevant experience and skill.

If an auditor is to carry out his duties properly, he needs to be independent of the credit union he is auditing, so that he is not subject to conflicts of interest.

SUP 3.5.2 R requires a credit union to take reasonable steps to ensure that the auditor it appoints is independent of the credit union.

If a credit union becomes aware at any time that its auditor is not independent of the credit union, it must take reasonable steps to ensure that it has an auditor independent of the credit union. The credit union must notify the FSA if independence is not achieved within a reasonable time.

The FSA will regard an auditor as independent if his appointment or retention does not breach the ethical guidance in current issue from the auditor's recognised supervisory body on the appointment of an auditor in circumstances which could give rise to conflicts of interest.

SUP 3.6.1 R states that a credit union must cooperate with its auditor in the discharge of his duties under that chapter.

In complying with SUP 3.6.1 R, a credit union should include giving a right of access at all times to the credit union's accounting and other records, in whatever form they are held, and documents relating to its business. A credit union should allow its auditor to copy documents or other material on the premises of the credit union and to remove copies or hold them elsewhere, or give him such copies on request.

Section 341 of the Act (Access to Books etc) provides that an auditor of a credit union appointed under SUP 3.3.2 R:

1. (1)

   has a right of access at all times to the credit union's books, accounts and vouchers; and

2. (2)

   is entitled to require from the credit union's officers such information and explanation as he reasonably considers necessary for the performance of his duties as auditor.

Credit unions and their officers and managers are reminded that, under section 346 of the Act (Provision of false or misleading information to auditor or Actuary), knowingly or recklessly giving false information to an auditor appointed under SUP 3.3.2 R constitutes an offence in certain circumstances, which could render them liable to prosecution. This applies regardless of whether an auditor is also appointed under the Friendly and Industrial and Provident Societies Act 1968.

A credit union should consider whether it should notify the FSA in accordance with CRED 14.9.3 G if it expects or knows its auditor will qualify its report on the audited financial statements or add an explanatory paragraph.

A credit union should consider whether it should notify the FSA in accordance with CRED 14.9.3 G if it receives a written communication from its auditor commenting on internal controls.

The auditor of a credit union has various rights and duties to obtain information from the credit union.

SUP 3.8.2 R states that an auditor of a credit union must cooperate with the FSA in the discharge of its functions under the Act.

The FSA may ask the auditor to attend meetings and to supply it with information about the credit union.

SUP 3.8.4 R states that an auditor of a credit union must give any skilled person appointed by the credit union all assistance that that person reasonably requires.

SUP 3.8.5 R states that the auditor must be independent of a credit union in performing his duties in respect of that credit union.

SUP 3.8.6 R states the auditor must take reasonable steps to satisfy himself that he is free from any conflict of interest from which bias may reasonably be inferred. He must take appropriate action where this is not the case.

Within the legal constraints that apply, the FSA may pass on to an auditor any information which it considers relevant to his function. An auditor is bound by the confidentiality provisions set out in Part XIII of the Act (Public record, disclosure of information and cooperation) in respect of confidential information he receives from a credit union or other person. An auditor may not pass on confidential information without lawful authority.

Auditors are subject to regulations made by the Treasury obliging them to report certain matters to the FSA. An auditor does not contravene any duty by giving information or expressing an opinion to the FSA, if he is acting in good faith and he reasonably believes that the information or opinion is relevant to any function of the FSA. These provisions continue to have effect after the end of the auditor's term of appointment.

SUP 3.8.11 R states that an auditor must notify the FSA without delay if he:

1. (1)

   is removed from office by a credit union; or

2. (2)

   resigns before his term of office expires; or

3. (3)

   is not re-appointed by a credit union.

SUP 3.8.12 R states that if an auditor ceases to be, or is formally notified that he will cease to be, the auditor of a credit union, he must notify the FSA without delay:

1. (1)

   of any matter connected with his ceasing which he thinks ought to be drawn to the FSA's attention; or

2. (2)

   that there is no such matter.