The "Bannerman Clarification Language" has been revised and is effective from January 2010 for all Companies Act audit reports.
The revised clarification language is as follows:
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Leading Counsel has provided further advice and has endorsed the formulation of the new language above without the need for any tailoring by practitioners. The statutory reference (to Chapter 3 of Part 16 of the Act) includes all relevant Sections (and should capture any subsequent amendments to this Chapter that might be made). The Chapter is self-contained and comparatively brief and this reference provides a reader with an informative message.
Audit 1/03, The Audit Report and Auditors' Duty of Care to Third Parties, introduced clarification language which is positioned towards the beginning of Companies Act audit reports. Auditors' responsibilities to their clients remain unaffected. The language clarifies that the audit is performed for the benefit of the company's members, as a body, in accordance with the Companies Act and case law.
In 2008, the language was slightly amended following the introduction of the Companies Act 2006. The amendment required auditors to tailor the language by selecting relevant statutory references. Changes to the Companies Act 2006 have brought about a need to amend the language again therefore this language has now been superseded by the language above.
It will remain for each firm to decide its own individual approach to the management of audit risk. While a third party's use of an audit report presents uncertainty for auditors, the best risk management policy is for firms to take the steps that are necessary to carry out quality audits. However, the introduction of this revision to the clarification language has a useful and balanced part to play alongside other materials and advice available to the profession. The language as revised should contribute to a reduction in the level of risk that the production or use of the Companies Act report can involve.
The purpose of the guidance contained in Audit 1/03 The Audit Report and Auditors' Duty of Care to Third Parties is to provide firms with a thought process to develop appropriate language for a particular case rather than simply trying to fit different situations into the example language. It is not possible to provide standard words for other public reports to cover all circumstances which firms might encounter - each situation is different for different types of reports.
It should be emphasised that the advice the ICAEW received from Leading Counsel on the revision to the clarification wording is specifically for Companies Act 2006 reports and whilst it is likely that similar legal considerations will apply for other public reports, members are reminded that they may need to take specific legal and professional advice on their particular reporting engagements.
Accountants may also want to refer to an article in the July/August 2003 issue of True & Fair.