Many regulators and trade associations must have accurate financial and management data about members, and auditors are ideally placed to meet such a need. In a bid to resolve the situation over reporting to third parties, the audit & assurance faculty of the ICAEW has taken the lead on providing professional guidance for these assignments and has recently published two technical releases on the subject.
The releases help third parties to understand what they can reasonably expect from accountants and provide accountants with clear guidance on agreeing appropriate engagements.
However, recent court battles have shown auditors have to be extremely careful. If auditors see the risk to themselves as too great then they could refuse to do the work.
Martyn Jones, chairman of the Special Reports of Accountants Panel which produced the releases, said: ‘hese technical releases are in the public interest. There is a demand for various types of these special reports but it is important the provision of this service is these reports are not affected by misunderstanding about what accountants are actually saying.’
Accountants need to manage their risks when they undertake these engagements given their possible duty of care to third parties. There are advantages for third parties in entering into properly scoped tripartite engagements, agreed with both the client and the third party, as these should outline the work to be performed.
Accountants doing such work must understand why they are being asked to report and the extent of loss that the third party could suffer by placing reliance on the accountant’s work. The technical release Audit 1/01 ‘eporting to third parties’ provides examples of the wording and opinions that are unacceptable and gives an idea of the pitfalls that accountants should avoid.
The release also sets out the form of words that can be used in engagement letters and how accountants should respond to requests for reports for third parties. Audit 2/01 deals with requests for references on clients’ financial status.
- Deborah Chaplin is the new head of the ICAEW’s audit and assurance faculty
Technical releases Audit 1/01 and 2/01 are available on Institute’s website
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