Last week the AABD's disciplinary hearing against PwC was finally concluded with a record fine of £1.4 million plus costs, for PwC's failures in its FSA client money ('CASS') audits of JP Morgan Securities Ltd.
In essence, the auditors failed to realise that JP Morgan had not held client money separately from its own money. Whilst the firm appeared to correctly segregate the money initially, a newly-implemented system meant that funds were actually re-transferred into office accounts at a group company. Neither JP Morgan's client asset team nor the audit team had realised this, over a seven-year period.
The outcome of the hearing comes at a significant time for CASS auditors. Recent changes to the reporting regime, tightening the process and forcing auditors to report all breaches in their report, becomes mandatory for 30 September year-ends. A four-month reporting window for CASS audits means that, from the beginning of February, all CASS reports will need to comply with the new rules.
Whilst most CASS auditors do not deal with clients on JP Morgan's scale, understanding the FSA's CASS rules and applying them effectively is a challenge for any audit team. The new reporting regime only heightens this challenge. Firms need to act proactively, ensuring that audit teams are fully trained and using updated specialist programmes to tackle the area with confidence.
NB: Next week Jeremy is presenting a webinar on the latest CASS rules and their effect on auditors. Don't miss the opportunity to ensure your staff are up-to-date with these changes.