Introduction
The cost of an audit is rising; constantly evolving standards and a drive from both the industry and the regulator to raise the bar on quality results in auditors having to do more work than ever before, which is being reflected in pricing. All expectations are that this trend will continue.
Many companies who are entitled to a legal exemption from having a statutory audit (for example, because they are below the small company thresholds or in receipt of a parent guarantee) have voluntarily opted to have one in the past, usually because:
- The Directors want a greater level of assurance over their numbers;
- It’s a legal requirement of owners/investors (for example, it’s common for PE-backed portfolio companies); or
- It’s seen as a way to enhance deal value.
But with the increasing cost burden, these companies now have to make tough decisions about where they invest their precious cash and management time and if getting that voluntary assurance is really worth it.
Are there other options available for these Companies?
Yes!
There are two common types of engagement we can provide which will give companies a more tailored and focused level of assurance in a more cost-efficient manner.
Agreed-upon-procedures engagements (“AUP”)
In an AUP engagement, we would understand the specific areas that you are looking for assurance on and agree with you on a set of procedures we will perform over them. We will then report back to you our factual findings as well as any other observations which may be of value to you. The report is private and not publicly distributed.
The benefits to a Company are that it is still receiving an independent and qualified practitioner-led piece of assurance work but one that focuses only on the areas from which it will receive the most value. Whilst as practitioners we are still required to abide by International Standards for AUPs, the rules are significantly less prescriptive than that of a statutory audit and this means that the scope is driven much more by the Company and the cost of the engagement is lower than an audit.
Limited assurance review engagement (“LAR”)
A LAR is typically more involved than an AUP as there are a greater number of standard-driven procedures to perform and the practitioner is expressing an opinion rather than factual findings. However, whereas in a statutory audit we would be issuing positive assurance opinion and needing to obtain significant evidence through detailed testing to express it, in a LAR the procedures are typically analytical and enquiry based in nature. A half-year review for listed businesses is a common example of a LAR.
The requirements are considerably less onerous than a statutory audit meaning it is less costly. We would want to understand any specific areas management would appreciate a more detailed focus on to tailor procedures accordingly. The reports from a LAR are private and not publicly issued.
So, what should I do?
If you are not legally required to have a statutory audit, we strongly suggest that you engage with your key stakeholders and consider whether it would be better for your business to have a more targeted, bespoke, private and cost-effective level of assurance provided.
At BHP, we provide independent expert assurance to Companies as well as tailored accounting advisory services.
To discuss how we could help you, contact a member of the team today.
