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Fresh thinking about assurance: user needs come first

8 January 2020: ICAEW's Audit and Assurance Faculty has released recommendations for a new model of assurance constructed around the needs of the primary users: the shareholders.

User-driven assurance recommends the application of a three pillar model and responds to Sir Donald Brydon’s observation that the voice of the ultimate users of audit has been curiously muted. In essence, ICAEW’s thought leadership report ‘User-driven assurance: fresh thinking’ puts shareholders at the heart of commissioning assurance, and promotes a more proactive role for audit committees. And the recommendations are likely to resonate well beyond the public-interest entities, which were the focus of Sir Donald’s review. 

Sir Donald has now published 'Assess, assure and inform: improving audit quality and effectiveness' – the final report of his Independent Review. “We are delighted that a number of Sir Donald’s recommendations to promote a user-driven audit are closely aligned with the ideas originally expressed in our June 2019 submission to his call for views and further developed in this essay, published in December 2019,” says Dr Nigel Sleigh-Johnson, Director of ICAEW’s Technical Strategy Accountability Group. “We will be continuing to develop and promote our thinking in this area.”

ICAEW believes that urgent action to address public concerns is needed now, and that progress can be made by building on the solid foundations already in place to support each of the three pillars at the heart of the recommendations. What are they?

Pillar 1 is improvements to the statutory audit. ICAEW recognises that audit needs to be  more informative; and that the perception and reality of audit quality are key. The first pillar is an improved version of the statutory audit, with a renewed focus on avoiding disorderly failure and protecting against fraud to improve audit quality. 

Pillar 2 is the enhanced use of assurance by regulators and other sector-focused bodies. This second pillar builds on the International Framework for Assurance Engagements and international assurance standards such as ISAE 3000. Such assurance engagements may be required or commissioned by government departments, regulatory bodies and other third parties, including trade and licensing bodies. ICAEW says that the importance of such engagements to the smooth functioning of economies should not be lost in the international debate about audit reform.

Pillar 3 involves, importantly, the empowerment of shareholders to require the commissioning of assurance. This would be delivered through new voting rights, alongside a more proactive role for audit committees.

Finally, ICAEW recognises that there is scope for audit committees to assume greater responsibility for both understanding and meeting the assurance needs of shareholders. Audit committees will therefore need to communicate their assurance planning with shareholders, and, to do so, will need to undertake discussions with both management and auditors.