Making the transition to assurance
Following audit threshold changes Reeves & Co has worked with BSL Gas Technologies Ltd, as it made the change from statutory audit to independent assurance report.
As audit exemption thresholds have risen, more and more companies have gained the freedom to decide if and what type of assurance they need for their financial statements. This can lead to difficult choices in deciding whether the best option is a voluntary audit engagement, an assurance review or an accounts compilation, for example.
I often have to talk the client through the difference between audit and assurance, and explain what their options are. They’re not auditors so many of them don’t really understand what we do during an audit,’ says Andrew Griggs, corporate partner with Reeves & Co LLP, a firm with offices in Kent, Gatwick and London.
From audit to assurance
Since the audit threshold rise Griggs has helped the Reeve & Co’s long-standing client, BSL Gas Technologies Ltd, through its transition from statutory audit to voluntary audit and then from voluntary audit to an independent assurance report on the company’s unaudited financial statements.
We have always been guided by Reeves,’ says Margaret Hodson, the company accountant: ‘They tell us what our options are and then we make a choice.
It can be hard for the client to see value in a lot of the work done during a voluntary audit,’ says Griggs, particularly some of the more detailed testing, and providing an assurance report allows us to tailor the work we do more towards what the client needs.
The Reeves & Co assurance report for BSL forms part of the latter’s full financial statements, and as well as being used inside the company, it is provided to its bank, its business insurance providers, and its shareholders. We have to prove to them that we do what we say that we are doing,’ says Hodson.
Reeves independent external assurance review is based on enquiry, analytical procedures, and assessment of accounting policies adopted by BSL directors, and examination of evidence relevant to some balances and disclosures, and it is conducted using a recognised framework (the ICAEW Assurance Service on unaudited financial statements, Technical Release AAF 03/06).
The work is completed in accordance with the Financial Reporting Standard for Smaller Entities and, if considered necessary, Reeves also performs limited examination of evidence relevant to certain balances and disclosures in the financial statements, where it became aware of matters that might indicate a risk of material misstatement in the financial statements.
The terms of the engagement exclude any requirement to carry out a comprehensive assessment of the risks of material misstatement, a consideration of fraud, laws, regulations and internal controls.
Reeves has tailored its assurance review to best meet the needs of BSL and users of its financial statements. ‘We don’t do the detailed testing associated with audit, but we still ask questions and check the numbers to make sure that they make sense,’ says Griggs, and all of this work is done in a way that relates specifically to BSL.
The review is more client-facing than an audit, he adds, and it focuses primarily on the areas where material misstatements in the financial statements might be most likely to occur at BSL.
For example, if you look at the balance sheet, there are some subjective numbers in the age analysis of debtors and of stock, so we look at these, check all of the reconciliations, and assure that things are ageing correctly, says Griggs, and BSL are questioned on the numbers.
I still get challenged, says Hodson, who describes the assurance engagement as less disruptive than audit but just as useful for the business and its stakeholders: ‘I feel we still get the same value as with an audit, and the shareholders are happy with what’s in the assurance report.
|Main assurance services available to organisations not subject to a statutory audit:|
|Voluntary audit engagement|
ICAEW's assurance resource
This page is part of ICAEW’s online assurance resource, which replaces the Assurance Sourcebook.