Governance benefits of new assurance reports

Abstract

The use of external assurance is one of many ways to add credibility to information. This article firstly discusses the concept of external assurance as defined by the International Auditing and Assurance Standards Board (IAASB) and its limited application to date outside the statutory financial statement audit. The article then discusses the experience of the Institute of Chartered Accountants in England and Wales (ICAEW) in applying the IAASB framework for external assurance in practice. The benefit of external assurance is primarily to enhance confidence in information for the benefit of users of information who have little control over its production. However, the benefit of external assurance potentially can extend beyond enhancing the credibility of information. Through a case study of developing an assurance reporting framework on internal control in the United Kingdom in 2006, the article firstly demonstrates the benefit of stakeholder engagement in the process. By taking part in collective decision-making over the scope of reporting and related responsibilities, stakeholders obtain a better understanding of the role of assurance reporting and thus are able to align their expectations. Collectively agreeing the basic elements of an assurance reporting framework also means that parties need not negotiate them along with other individual engagement terms, thereby saving time and cost. Secondly, where stakeholders decide to opt for an ‘assertion-based’ assurance reporting framework, management reports on its internal control procedures and their effectiveness and professional accountants opine on management assertions. This assurance process can facilitate better governance as management explicitly owns primary responsibility over the information rather than attributing it to external accountants. The article finally considers the use of external assurance reporting in a wider context. Assurance services, conducted on a voluntary basis and outside the scope of a statutory financial statements audit, can enhance the credibility of specific information that is relevant to certain stakeholders without adding unnecessary burdens to others that have little to gain from this assurance process. This may be particularly relevant to financial institutions subject to increased scrutiny because of the recent crisis in the banking sector.