Client money and breaches – areas of increased focus to expect in your AFSL audit this year

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Client money and breaches –areas of increased focus to expect in your AFSL audit this year

ASIC has recently published its findings regarding audit quality for the financial year 2019/2020. ASIC has been critical of audit quality over a number of years and FY19/20 was no different. Although the mainstream media focused on ASIC’s comments regarding audit failings outside of financial services, the report also included particular comments in respect of audits required for AFS Licensees. 

In the results, ASIC stated “audit firms need to work on improving audit quality and significantly reducing the number of instances where auditors do not obtain reasonable assurance that a financial report is free from errors”.

The report highlighted areas in AFS Licensee audits where the standard of work done was inadequate. These included:

  • adequate test controls over segregating client monies and depositing into designated bank accounts and controls to ensure withdrawals were for permitted purpose;
  • adequate test controls over daily and monthly reconciliations of client money liability ledgers to designated bank accounts; and
  • testing the completeness and accuracy of breach registers and breach reporting and timely resolution of complaints.

AFS Licensees should always ensure that client money is segregated and reconciled appropriately, and breach policies and registers are properly maintained. We suggest AFS Licensees take the opportunity to ensure their breaches and client money processes and monitoring are properly documented. We anticipate AFS Licensees will find their auditors give these areas additional focus in their next audit.

Also, of note in the report was the impact of COVID on the manner in which an audit can be conducted. Notable impediments included:

  • the ability to effectively conduct audits remotely including limitations on interactions with officers of the audited entity and assessing records;
  • the design and effective operation of key company internal controls and the impact on the nature, timing and extent of audit procedures; and
  • impact on component audits and restrictions on access to records.

Background

Forms 70 and 71 need to be submitted to ASIC by AFS Licensees annually, annexing a set of audited financial statements.

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About The Author

Sarah

Sarah Murray

As the Head of Licensing, Sarah has oversight and responsibility for all AFS and credit licence applications ensuring they fulfil the legal and regulatory guidelines set by ASIC. Sarah also assists clients maintain their licences through ongoing compliance processes and procedures and the development of compliance programs. She also has oversight of all AUSTRAC registrations and development of Anti-Money Laundering / Counter Terrorism Financing programs on behalf of clients.