Bank audits 'should follow Swiss model'

SWISS regulators could provide a model for improving the auditing of British banks, according to a new report.

The Institute of Chartered Accountants of Scotland (ICAS) says Swiss auditors have had a significant and direct role in banking supervision since 1934.

In Britain the role of auditors is more limited and the Financial Services Authority oversees direct inspection of banks.

The FSA and Bank of England Code, published last week, aims to enhance the regulatory process and contribute to the conduct of high quality external auditing and ICAS believes it could benefit from the Swiss model.

The ICAS report titled The Contrasting Role Of Auditors In UK And Swiss Banking Supervision, written by academics from the University of East Anglia, recommends a number of features of the Swiss system that the UK could adopt.

Bank audits in Switzerland are undertaken by a specialist unit in the banking regulator, the Financial Market Supervisory Authority.

In contrast, reviews of other public interest companies are undertaken by the Swiss public oversight body, the Swiss Federal Audit Oversight Authority. This enables specialist banking audit knowledge to be concentrated in a dedicated team at the regulator, also ensuring the audit approach and performance between and within audit firms is benchmarked.

In the UK the Audit Inspection Unit (AIU) is responsible for undertaking the review of auditors' work.

The report suggests the creation of a dedicated team within the FSA responsible for the review of auditors' work in financial services firms could lead to the same knowledge and benchmarking opportunities witnessed in Switzerland.

It also states close liaison between the AIU and the FSA would need to take place, as is the case with the equivalent Swiss bodies.

It suggests the FSA, and in due course the Prudential Regulatory Authority, can increase engagement with auditors by approving auditors as banking experts.