Strengthening Financial Confidence: Assurance Reviews and Agreed Upon Procedures

In our previous blog “When does a company need an audit?”, we delved into the scenarios where companies may be exempt from the requirement to have an audit. While some exempt companies opt for voluntary audits to enhance user confidence in their financial statements, there are less costly alternatives that are worth exploring. In this blog we will discuss the nature of Assurance Reviews and Agreed Upon Procedure Assignments and how they can help provide confidence in financial statements without having a full audit. 

What is an Assurance Review?

An assurance review involves an independent review of a company’s financial statements to provide a limited level of assurance on its accuracy. Whilst not as comprehensive as a full audit, the review will involve a qualified accountant reviewing the accounts and investigating any areas of concern. This encompasses the analysis of variations from one year to the next and may involve additional review of the underlying data if any anomalies in those variations are identified.  

Once the assurance review has been completed a report is included in the financial statement that records the conclusions of the reviewer on whether anything has come to light from their review to suggest that the financial statements have not been prepared in accordance with UK GAAP.

While the level of assurance provided is limited and therefore not as high as a full audit, an assurance review still adds credibility to the financial information presented.

What are agreed upon procedures?

Agreed upon procedures refer to a tailored engagement where a report of findings is issued by a qualified accountant based on specific procedures that have been carried out. These specific procedures are agreed between company management and the accountant in advance so that there is a clear scope to the engagement. For example, management of a company may want a detailed review and testing of their income recognition policy.

What are the benefits?

There are multiple benefits to these types of reviews:

• Enhanced reliability of financial information – one of the primary advantages is increased reliability of the financial statements and therefore reinforcing stakeholder confidence in them. This can be especially useful if searching for new funding or investment.
• Improve compliance with regulatory standards – the UK has a robust regulatory framework that requires adherence to specific financial reporting standards. Assurance reviews and agreed upon procedures can help ensure that companies comply with these standards, reducing the risk of non-compliance penalties and legal issues.
• Mitigate risks – assurance reviews and agreed upon procedures enable companies to identify potential risks and weaknesses in their financial processes. This proactive approach allows for timely corrective actions, reducing the likelihood of financial irregularities as well as enabling management to make better informed decisions and identify efficiencies.
• Lower cost – the cost of both types of assignment are lower than that of a voluntary audit.

Want to know more?

At Carpenter Box we can provide assurance services and agreed-upon procedures engagements. If you have any questions, please get in touch with a member of the audit team by calling 01903 234094.