For various reasons a business or a charity may need to assure interested third parties, its own management or shareholders/stakeholders that its financial statements are a true representation of its financial position.
There are several ways that this assurance may be given, ranging from nothing at all to an audit. An organisation does not have a completely free choice in the level of assurance they adopt. There are minimum requirements set down in law which a business or a charity must adhere to. They can choose to provide a greater degree of assurance voluntarily, but they must at least comply with the minimum regulations set out in the Companies Act 2006 or the Charities Act 2011. The options are: Audit; Assurance Review; Agreed – upon Procedures; Accounts Preparation; No action at all. Audit: Medium and large companies, as currently defined by the Companies Act, and large charities are required by law to have an audit. Small companies are exempt from mandatory audit if they meet two the following three criteria: no more than 50 employees; no more than gross assets of £3.26million; less than £6.5million turnover. Charities unless large (Income more than £500,000 or total assets more than £3.26miliion) can choose between an audit , an independent examination or nothing if very small. During an audit an independent qualified accountant examines your accounts, analysing changes from one year to the next, checking that your accounting processes are adequate, sample testing from the underlying information and considering the evidence that makes up the audit trail. The accountant, who must be authorised to conduct audit by the ICAEW and conduct them according to a quality controlled legal regulatory framework, must give an opinion as to whether the financial statements can be relied upon and this opinion is included in a report appended to the financial statements. Assurance Review: During an assurance review an independent qualified accountant will review your accounts and investigate any areas of concern. This includes analysing changes from year to the next and may include further testing of underlying information if a concern is raised during the review. The accountant must conclude whether there are any problems in the accounts that require further investigation in a report which is appended to the accounts. The quality of assurance reviews is not controlled in law, making the quality of the review variable and dependent upon the experience of the accountant conducting the review. As Chartered Accountants we do have to comply with certain accepted standards for such reviews laid down by our professional body. Agreed –upon Procedures: Following discussions with a qualified independent accountant, you will agree a set of procedures that the accountant will undertake to cover an aspect of your business rather than the whole of your financial statements. The accountant will produce that reports the factual results of these procedures and does not give an opinion or a conclusion. Again this form of assurance is not a regulated service and is not subject to legally enforced quality control. Accounts Preparation: An independent qualified accountant will ensure that your company’s financial statements are correctly put together, checking that the numbers are correctly transferred from underlying accounting records and that the accounts comply with all relevant disclosure requirements. The underlying records are not tested or validated and no conclusion or opinion is provided. The accountant will append a report to the financial statements that confirms only that they have been compiled by a qualified professional. There is no law enforcing quality control, so the quality of the service is dependent on your choice of accounting professional. No action: You choose not to engage the services of a professional accountant. In this case you must be confident in the quality and integrity of the information underlying your accounting systems; that you are able to compile your accounts accurately and meet all statutory disclosure requirements; that no one, inside or outside your business, will require greater confidence in your accounts. If you are unsure as to your options or whether you are required to have a mandatory audit, please do call us. We would be happy to advise you as to whether you require an audit, without obligation or charge. Be assured that Bates Weston Audit Limited is registered to carry on audit work in England and Wales by the Institute of Chartered Accountants in England and Wales. The firm’s audit team is experienced in company, charity and academy audits, complying with all statutory and regulatory requirements. The table below summarises the main components of each assurance service.
|Audit||Assurance Review||Agreed Upon Procedures||Accounts Preparation|
|Accounts examined||Accounts reviewed||Aspects of business information reviewed and agreed procedures undertaken||Accounts prepared, checking accurate transfer of data from underlying records and compliance with disclosure requirements|
|Changes analysed from one year to the next||Changes analysed from one year to the next|
|Adequacy of accounting processes checked|
|Sample testing underlying accounting records||Limited testing of underlying information only for areas of concern|
|Evidence of audit trail|
|Accountant gives an opinion as to reliability of the financial statements in an appended audit report||Accountant concludes, in an appended report, whether or not they have seen anything during the review to suggest a problem that requires further checking to address||Accountant produces a factual report, with no conclusion or opinion||Accountant appends report to financial statements confirming they have been compiled by a qualified accountant|
|Quality controlled, regulated service||Non regulated service||Non regulated service||Non regulated service|
Source: ICAEW: Assurance Options