The Auditing Practices Board (APB) has announced the publication of a consultation draft of a second revision of Practice Note (PN) 21 ‘The Audit of Investment Businesses in the United Kingdom’. As this is a second consultation draft, and because the APB is aiming to finalise the PN by the end of the year, the consultation period is shortened to two months and ends on 30 September 2007.

The current version of PN 21 was issued in 2000. Since then it has been supplemented by Bulletins 2001/7 ‘Supplementary guidance for auditors of investment businesses following ‘N2’’ and Bulletin 2005/2 ‘Audit risk and fraud – supplementary guidance for auditors of investment businesses’.

A revised version of PN 21 was issued as a consultation draft in March 2006, primarily to incorporate the two supplementary Bulletins into the PN and to update it to reflect the replacement of Statements of Auditing Standards with ISAs (UK and Ireland). Because of impending changes to law and FSA rules relevant to investment businesses, however, it was decided not to finalise the PN last year, but instead to update it to reflect these changes in 2007.

Significant changes have been made to the consultation draft issued in March 2006 to:

• reflect the relevant changes to the law and FSA rules becoming effective on or before 1 November 2007;
• align the PN better with the other financial sector Practice Notes issued at the beginning of this year, particularly PN 19 ‘The audit of Banks and Building Societies in the United Kingdom’; and
• add further guidance on reporting to the FSA on controls over Client Assets under FSA section SUP 3.10.

Further changes to the FSA’s Handbook are expected. In particular the FSA has recently issued Consultation Paper 07/15 ‘External Assurance on Regulatory Returns’, which proposes the removal of the requirement for auditors to report under SUP 3.9. Guidance on reporting to the FSA under SUP 3.9 remains in this consultation draft, but will be deleted from the final version of PN 21 if the FSA’s proposals are implemented.

Richard Fleck, APB Chairman, said:
“There have been a number of recent changes in law and regulation relating to investment businesses which are reflected in this second revision of Practice Note 21. It also includes new guidance on reporting on controls over Client Assets. The APB welcomes comments on the draft from auditors and others with an interest in investment businesses”.

Copies of the consultation draft may be downloaded from the Publications (Exposure Drafts) section of this website.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on Corporate Governance.
2. The APB is committed to leading the development of auditing practice in the United Kingdom and the Republic of Ireland so as to:
   • establish high standards of auditing;
   • meet the developing needs of users of financial information; and
   • ensure public confidence in the auditing process.
3. The APB issues Practice Notes to assist auditors in applying auditing standards of general application to particular circumstances and industries. Practice Notes are persuasive rather than prescriptive. However, they are indicative of good practice even though they may be developed without the full process of consultation and exposure used for auditing standards.
4. The revised PN has been prepared with advice and assistance from staff of the FSA.
5. For further information please contact Jon Grant, APB Executive Director, on 020 7492 2410.