The Financial Services Authority will consult on extending the audit rule waiver for mortgage and general insurance intermediary firms to other small firms next month, as well as push the DTI to make the necessary changes too.
The news comes after the FSA announced in November mortgage and general insurance intermediary firms which are no longer required to appoint a statutory auditor will benefit from a rule waiver removing the requirement they include only audited figures within the reserves reported in their regulatory returns.
The waiver removes the requirements for reserves to be taken from audited accounts, thus allowing firms to include unedited reserves, and for interim net profits to be verified before they can be included as “eligible capital”.
Robin Gordon-Walker, press officer at the FSA, states: “The FSA is planning to extend the waiver to other small firms and will consult on the issue next month.”
He says the waiver will be on the same lines as the one for mortgage and general insurance firms and is a “useful part of lessening the regulatory burden on small firms”.
But before the FSA can extend the waiver, Gordon-Walker says it will have to wait for the DTI to amend the Companies Act 1985 so other types of small intermediary firms do not have to audit their accounts.
He adds: "We will be in talks with the DTI next month to discuss possible amendments and speak about extending the exemption."
Last July, FSA chairman Callum McCarthy announced the Financial Services Authority was talking to the OFT to get small financial services firms exempted from the requirement to have their accounts audited, as legislated under the Companies Act 1985. (See IFAonline story - FSA considers auditing oust for small firms).
While most small firms are exempt a requirement to have their Companies Act rules, financial services intermediary firms are not, so the FSA said it would seek to persuade the Department of Trade and Industry to change the Act so no small firms with turnover of less than £5m had to comply.
The FSA's rule waiver for mortgage and general insurance intermediary firms followed the Department of Trade and Industry’s (DTI) announcement it would, from 5 September 2005, amend the Companies Act 1985 to enable such firms to take advantage of the small company exemption from having a statutory audit.
The amendment broadly includes companies carrying on mortgage and/or general insurance mediation business with a turnover of under £5m.
As it stands, Section 249a of the Companies Act 1985 sets circumstances under which firms are exempt from appointing an auditor while Section 249b1 lays out the conditions under which these exemptions are not available.
It is this clause which stipulates financial firms with Part IV supervision - ie financial intermediaries - are not exempt from the auditing requirement, even though most companies would be classified as small investment intermediary firms.
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