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October 1, 2013

ICAEW calls for enhanced assurance

The Institute of Chartered Accountants of England and Wales (ICAEW) has called for increased levels of assurance in financial audits as a way of rebuilding trust in business and finance.

According to ICAEW executive director Robert Hodgkinson, "there is increasing emphasis worldwide on the first half of annual reports and how they can equip investors and other stakeholders with information on which to base decisions. But the big question is whether this information is trustworthy."

"There is a trend towards companies requesting assurance on other elements of the annual report – beyond the traditional auditor report on the financial statements – to help add credibility to information that matters to markets."

In its paper The Journey: Assuring All of the annual Report, the ICAEW suggested four stages towards an assurance report that extends the audit opinion to cover the whole of the annual report.

The first stage is what the ICAEW describes as the "status quo", and that no assurance is given over any part of the annual report apart from the financial statements.

The second stage is that the audit report will be accompanied by an assurance report covering one or two other aspects of the financial statements. The third is that the accompanying assurance report covers most of the rest of the annual report.

The final scenario is that a single assurance report replaces the audit report. Hodgkinson noted that "As the scope of assurance grows, the challenges of moving to assurance on the full report shrink.

"Some elements will undoubtedly prove harder to assure but, over time, it should be possible to overcome the challenges"The report noted: "it is not inevitable that we will see a linear journey through these scenarios, or that we will see any development beyond the first scenario which represents the current status quo."

KPMG UK welcomed ICAEW’s report its partner David Matthews said: "It is surely an anomaly that some of the information most valued by investors is subject to the least scrutiny. We welcome the ICAEW’s report on this important area. "Regulation could be introduced to mandate greater assurance over the front end of annual reports, but regulation can be a blunt tool if not wielded carefully. We would rather see a demand-driven solution – it’s time for investors and stakeholders to tell us what would give them the greatest value.

"If companies are prepared to make the investment to improve the transparency and quality of narrative reporting and the robustness of the processes that generate it, it is reasonable to expect auditors to make that journey with them, providing assurance over the output to investors," Matthews said.

"If we are serious about restoring trust in corporate reporting, then greater assurance over front end statements is surely a vital element in making that happen," he added.

Related Link

The Institute of Chartered Accountants of England and Wales

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