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Audit: what else is out there?

Monday 6 August 2018
by Alex Peal - Partner

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For many years most companies were required to have their financial statements audited. The price of limited liability was that the accounts would need to be audited and be placed on public record for all to view.

However, over the last 20 – 30 years the regulations have changed and today relatively few companies require their accounts to be audited. This has meant that some fairly substantial companies are now exempt from audit. A company can have a turnover of £10m, 49 employees and be highly profitable with no requirement at all for any review of their financial statements.

While in some cases the directors and shareholders are comfortable with this position, in others a stakeholder may want to have some form of review of the financial statements; where this is the case there are a number of options including:

>  Agreed upon procedures

>  Assurance review

>  Voluntary audit

Voluntary Audit

Many companies choose to have a voluntary audit – i.e. their accounts are audited in the same way as if they were a larger company required to have an audit. This has several advantages, a key one being that other stakeholders such as banks and investors understand what an audit is. However, for some companies one of the alternatives may be more useful.

Assurance Review

An assurance review is part way between an accounts preparation assignment and a full audit and similar in scope to an Independent Examination, a form of assurance required for some charities. The Chartered Accountant performs a number of review procedures and if all is well will conclude that nothing has come to their attention that needs reporting. However, an assurance assignment is fairly general and does not focus on particular areas of the financial statements.

Agreed Upon Procedures

An alternative is agreed upon procedures (AUP) which, as the name suggests, means that the company stakeholders agree with the Chartered Accountant which areas to focus on and what procedures will be performed. This type of assignment is extremely flexible and can be tailored to the needs of the particular stakeholders and their priorities from year to year. The Chartered Accountant can go into detail to provide assurance in specific areas whilst ignoring other accounts balances which the stakeholders have no concern about.

The International Federation of Accountants have recently published a guide to Agreed Upon Procedure Engagements. Whilst written for accounting frms it provides more information about the range of AUP assignments and how this works in practice.

More information can be found at  www.ifac.org or to discuss your options further please contact me on the details listed above or by submitting an enquiry.

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