Auditing p2p platforms

[shimself]

Are platforms subject to proper audit basd on the size of their loan book, or is it just based on their own (much much smaller) assets and turnover based on fees and spread?

Would it be required of auditors to make adequate sample checks of the loan book, sample investor accounts?  Charges on securities correctly taken?

[dualinvestor]

There are two distinct requirements, an audit is under the Companies Act 2006 and exemptions therefrom are contained in this link, in all cases limits assets and liabilities that are the property of lenders or the liabilities of borrowers fall outside the legal definition of those belonging to the company as they are the trust assets; however on the basic accounting principle of "substance over form" several P2P platforms have chosen to include them in their Balance Sheet and thereby made themselves subject to audit.  A few platforms are public companies, or subsidiaries of one, so are required to have an audit irrespective of size but as far as I am aware none come within the other attributes that require a compulsory audit.  As for your secondary point strictly speaking the loan book does not form part of the company assets so is not required to be audited, but I would be very surprised if the auditor ignored it.  Although recently the audit has been expanded to represent the interests of all "stakeholders" (whatever that New Labour word should mean) it is not, and never has been, its primary function to detect fraud.

The second requirement is that of the Financial Conduct Authority under the Financial Services and Markets Act, and flowing from that any insurance company requirements of the neccesity of Professional Indemnity Insurance and clauses in such a policy e.g. one of the reasons given by Lendy for changing accountants/auditors was that the new firm was much larger and was a result of a review by their insurer.  These policies are private and lenders are not likely to ever be privvy to their terms.

[shimself]

Dualinvestor, thanks for the informed answer

Stakeholders is newspeak for "interested parties", but is actually clearer in my view as it clarifies that "interested" doesn't include "just curious".  Lenders just have to be counted as stakeholders in any plain person's view

https://www.frc.org.uk/document-library/...ing-to-fra which is I think part of the auditors' bible says that they do have to keep fraud in mind and act on any suspicions that arise

Mind you maybe it's more Quality Assurance audits which might give us platforms that do what we "expect" (think they ought to do).  I still retain a quaint belief in independent QA review.

[dualinvestor]

Stakeholders is newspeak for "interested parties", but is actually clearer in my view as it clarifies that "interested" doesn't include "just curious".  Lenders just have to be counted as stakeholders in any plain person's view

https://www.frc.org.uk/document-library/...ing-to-fra which is I think part of the auditors' bible says that they do have to keep fraud in mind and act on any suspicions that arise

The frc is the Financial Reporting Council and if it is anyone's bible it is that of those who prepare accounts (or financial statements as they have been called for the last few years) rather than those who audit them, but as I said in my first reply it is not the primary function of an audit to detect fraud, it is something borne in mind but not actively investigated unless during the course of an audit suspicions are aroused from other circumstances.

On the point of stakeholders being recognised as other interested parties it is worth remembering that many p2p platforms are not audited at all and even those that are I not aware of any successful action by anyone other than a shareholder against an auditor of any company let alone a platform operator.  (That is not a definitive statement as it iis just what is within my knowledge and I must admit it is not a subject I follow in any great depth although i do read the accountancy press)

[shimself]

...nt many p2p platforms are not audited at all and even those that are I not aware of any successful action by anyone other than a shareholder against an auditor of any company let alone a platform operator.  (That is not a definitive statement as it iis just what is within my knowledge and I must admit it is not a subject I follow in any great depth although i do read the accountancy press) 

I didn't really have auditors' liability insurance in my sights, I was just contemplating how much comfort once could derive from the knowledge that X company was audited.  Like I said my thoughts have moved on more to formal Quality Assurance (ie documented procedures which are well thought out and actually followed).  As if..