Navigating AFSL Audits – Understanding the requirements to manage compliance risk, safeguarding the Licensee and stakeholders
To provide financial services in Australia an entity must hold an Australian Financial Services License (AFSL). AFSL’s have stringent audit requirements in addition to having a financial statement audit. In this article we summarise the main areas that are required to be audited, why it is important for an AFSL auditor to understand all the audit requirements, shedding light on key considerations and their vital role in cultivating trust, and how LNP Audit and Assurance’s AFSL expertise can help licensees minimise risk.
Lately ASIC has been much more active ensuring the audit requirements are being met and has taken regulatory action against a number of licensees who have not been lodging financial statements or compliance audit reports on time or at all, or have not properly reported compliance issues in their compliance audit reports.
AFSL Audit Requirements
AFSL holders have three main audit requirement areas, which are applicable to all licensees.
Audit of compliance with the general licence requirements. General licence requirements are quite broad and require a licensee to do all things necessary to ensure that the financial services covered by the licence are provided honestly efficiently and fairly, which includes but is not limited to managing conflicts of interest, complying with financial services laws, having adequate resources, maintaining competency and training, being a member of a dispute resolution scheme (typically AFCA).
Audit of compliance with financial requirements. All AFSL’s have financial requirements from relatively simple ones including base level and cash needs requirements, to more complex and onerous requirements including Net Tangible Assets (NTA), Surplus Liquid Funds (SLF), Adjusted Surplus Liquid Funds (ASLF) and other specific requirements. The requirements depend on the type of license held and the business being operated and can be complex.
(General and Financial requirements compliance audits are reported on form FS 71).Audit of the financial statements. AFSL holders are required to prepare, have audited, and lodge General Purpose Financial Statements with ASIC within the statutory deadline, typically 4 months.
Additionally depending on the circumstances other areas that require audits include; client money reconciliation and reporting rules, compliance plans, AML, MDA, and others.
Why an AFSL auditor must have AFSL (not just financial statement) audit experience
To efficiently navigate the complex audit requirements, an auditor must have relevant experience. Most auditors have financial statement audit experience, but many do not have the relevant compliance audit experience. If the audit firm does not have the relevant compliance audit experience, it is possible that the licensee may not be complying with the compliance audit requirements. Indeed, LNP often comes across areas that have not been adequately considered, or which have not been looked at at all when we take on new AFSL audit clients.
As well as meeting the audit requirements experienced AFSL can also assist a licensee to identify ASFL compliance matters and to identify best practice opportunities.
Adhering to regulatory requirements, implementing robust governance structures, and continuously improving processes, AFSL holders not only meet compliance standards but also foster trust among stakeholders.
AFSL holders turn to LNP Audit + Assurance for Quality Audit and Assurance services. LNP has over 80 AFSL clients of many different types, and we have very significant knowledge of the varied audit requirements. In particular we are experts in relation to OTC derivatives, MDA’s, Funds management, Financial intermediaries and advisors, Brokers and Dealers, and many others.
We have a reputation, expertise, and contacts that few firms of any size approach. With offices across Australia, including Sydney and Melbourne, we are one of the largest independent audit specialists.
Please get in touch to discuss your AFSL audit and assurance requirements.