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Developing a meaningful audit and assurance policy

Author: ICAEW Insights

Published: 23 Jun 2023

ICAEW’s Audit and Assurance Faculty has updated and reissued its report responding to the introduction of AAP, bringing together a broad range of perspectives.

The Audit and Assurance Policy (AAP) was first introduced by Sir Donald Brydon as one of the recommendations emerging from his independent review into the quality and effectiveness of audit. The proposal has since generated substantial interest and discussion among the various stakeholders who will be affected by the change. 

In 2021 the Department of Business, Energy and Industrial Strategy (BEIS) issued a White Paper, Restoring trust in audit and corporate governance: Consultation on the government’s proposals, in which the government signalled its plan to establish the AAP as a new requirement for the UK’s largest companies. 

In May 2022, the government published its response to the feedback it received through its consultation. Subsequently, the Financial Reporting Council (FRC) published a position paper in July 2022, outlining how it planned to support the UK government’s reforms.

The process of audit and corporate governance reform is now picking up pace as the UK government moves forward with its plan to implement new regulations in this area, including around the AAP. The FRC has also recently issued a consultation on its proposed revisions to the UK Corporate Governance Code, including in relation to the AAP.

ICAEW’s Audit and Assurance Faculty responded to the BEIS White Paper with its own report, Developing a Meaningful Audit and Assurance Policy, first issued in March 2021. To reflect developments in its thinking since the first version of the report, and to incorporate the additional information available from the UK government and FRC, the report has now been revised and updated. It brings together the perspectives of a broad range of participants and stakeholder groups, including company directors, through an extensive research and evidence gathering process.

ICAEW is strongly supportive of the introduction of the AAP as a means for communicating the assurance an entity has obtained on financial and non-financial information. 

The Policy has the potential to clearly and transparently communicate how an entity seeks assurance in the context of its strategic objectives and risk appetite. In addition, it would demonstrate how its regulatory obligations are being complied with and how it ensures that information provided to users is fair and balanced. 

As reporting and regulatory requirements become more comprehensive and wide-ranging, the assurance landscape is also becoming more complex. For example, more businesses are being required to disclose more information on environmental, social and governance (ESG) metrics to respond to user needs and to meet regulatory requirements. 

Entities are seeking internal and external assurance on this information as reporting in this area becomes more prominent and user interest increases, from external auditors and other specialist providers. The AAP offers an opportunity to create a comprehensive, coherent, and integrated picture of the different types of assurance being obtained.

ICAEW’s Audit and Assurance Faculty’s report discusses the possible structure and form of the AAP, considers challenges to be overcome, makes recommendations, and sets out the actions that will be needed to achieve the sort of “tailored, cost effective and proportionate framework for meaningful dialogue” that was originally envisaged by Brydon. 

Alex Russell, Head of Audit and Assurance Strategy at ICAEW, says: “Properly implemented, we envisage that the Policy will benefit a wide range of stakeholder groups, including company directors, shareholders, regulators, auditors, and other assurance providers, both external and internal. The Audit and Assurance Policy will bring benefits as a vehicle to communicate information in ways that make audit and assurance activities more accessible, meaningful and educational for a broad range of users.

“In recognition of the potential value for all users, ICAEW has suggested that companies and organisations of all sizes should consider producing an Audit and Assurance Policy, whether or not required to by policymakers.” 

The Audit and Assurance Faculty will continue to consider the need for additional advice and resources in this area and welcomes suggestions and contributions from members on this topic.

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