Proposed International Framework for Assurance Engagements
and
Proposed ISAE 2000 Assurance Engagements on Subject Matters other than Historical Financial Information
Issued for Comment by the International Federation of AccountantsComments from ACCA
June 2003
General Comments
ACCA is please to comment on the proposed International Framework for Assurance Engagements (the Framework) and the proposed International Standard on Assurance Engagements 2000 Assurance Engagements On Subject Matters Other Than Historical Financial Information (ISAE 2000).
ACCA supports the issue of the Framework which is intended to sit above two sections of the revised Auditing and Assurance Handbook: Audits and Reviews of Historic Financial Information and Other Assurance Engagements. It will inform preparers of information and users as well as those performing assurance engagements.
The Framework has drawn on a considerable body of experience, academic research and debate. As well as the material referred to in the explanatory memorandum, the International Auditing and Assurance Standards Board (IAASB) will be aware of the April 2003 Issues Paper Principles of Assurance: Fundamental Theoretical Issues with Respect to Assurance in Assurance Engagements issued by the European Federation of Accountants (FEE) of which ACCA is an active member.
ACCA recognises that auditors will have little problem with the Framework but we have significant reservations about the issue of material which may have the effect of hindering the growth of assurance services which are in the public interest.
Public Interest Consequences
The market for audit services is well established and the Framework must necessarily accommodate International Standards on Auditing (ISAs). The market for other assurance services is not so well developed and it is important that the Framework and ISAE 2000 do not hinder the growth of assurance services which are in the public interest.
IAASB should be aware of the fact the public interest is already being served by major firms of accountants providing assurance under other standards. For example BP's Environmental and Social Review 2002 contains a report from Ernst & Young 'to give the reader assurance regarding the information reported'. The firm's conclusions are set out by reference to the assurance principles described in the draft AA1000 Assurance Standard published by AccountAbility in June 2002.
Assurance services may be provided by many individuals and organisations which are not accountants. If a potential client cannot obtain assurance because the circumstances preclude the application of ISAE 2000 assurance may instead be obtained from a certification organisation or a consultancy. As currently proposed, we are concerned therefore, that some valuable assurance engagements will be prohibited and others rendered less valuable because of an artificial division of assurance into only two levels.
We strongly suggest that the Framework should not go beyond a simple exposition of the assurance engagement. It should remain silent on threshold and other policy issues which may restrict its use. These are better dealt with in specific standards. The Framework describes the elements of an assurance engagement whereas ISAE 2000 sets out essential procedures. ISAE 2000 is, however, written at a high level and could equally well serve as a part of a framework. Specific standards for assurance engagements, such as assurance on sustainability reports, should be developed incorporating consideration of policy issues which are relevant to the individual circumstances.
Our main concerns are in the following areas:
- the restriction of assurance to just two forms - one of which is of very little value
- the introduction of a defined threshold quality for suitable criteria
and - the negative form of reporting for 'limited assurance'
Assurance services are of commercial value when the subject matter is of value to its users and the extra credibility added by the report of the practitioner increases that value. The Framework proposes to allow assurance at 'audit-level' which is potentially of high value. However, the only other assurance to be allowed is at 'review-level' where the procedures 'often comprise only inquiry and analytical procedures'. This form of assurance is unlikely to be perceived as having significant value outside the financial reporting field.
The mandatory use of a negative form of reporting at review-level is acceptable for financial reporting primarily as a means of differentiating the engagement from an audit. However, many users outside the financial reporting field will have no need of such a signal. It is necessary to allow the use of a positive form of wording to convey the value of assurance in circumstances where users might otherwise not seek assurance at all.
The Framework also proposes that assurance engagements will not be allowed unless the criteria are suitable. In effect, this means that a review-level engagement is not possible unless, in the circumstances, an audit-level engagement is also possible. This will deter the use of assurance in circumstances where criteria are emerging.