aaf 01/10 framework document for accountants reports - icaew
TRANSCRIPT
March2010
TECHNICALRELEASE
FRAMEWORKDOCUMENTFORACCOUNTANTS’REPORTSONGRANTCLAIMS
TechnicalReleaseAAF01/10
TheICAEWoperatesunderaRoyalCharter,workinginthepublicinterest.Itsregulationofmembers,inparticularinrespectofauditors,isoverseenbytheFinancialReportingCouncil.Asaworld-classprofessionalaccountancybody,theICAEWprovidesleadershipandpracticalsupporttoover134,000membersinmorethan160countries,workingwithgovernments,regulatorsandindustrytomaintainthehigheststandards.TheICAEWisafoundingmemberoftheGlobalAccountingAlliancewithover775,000membersworldwide.
Copyright©ICAEW2010
Allrightsreserved.Nopartofthispublicationmaybereproducedorcopiedinanyformorbyanymeans(includinggraphic,electronic,ormechanical,photocopying,recording,tapingorinformationretrievalsystems)withoutwrittenpermissionofthecopyrightholder.
ThisguidanceisissuedbytheAuditandAssuranceFacultyoftheICAEWtoassistreportingaccountantswhenaskedtoprovidereportsongrantclaims.Theguidancedoesnotconstituteanauditingstandard.Professionaljudgementshouldbeusedinitsapplication.
Theguidancealsoreflectsgoodpracticeprinciplesforgrant-payingbodiesandgrantrecipients.Itimposesnomandatoryrequirementsbutisintendedtobehelpfultoboththoseinvolvedinprovidingspecialreportsongrantsandreturnsandalsotothosegrant-payingbodiesthatreceiveandrelyonsuchreports.
LawsandregulationsreferredtointhisconsultationpaperarestatedasofMarch2010.NoresponsibilityforanypersonsactingorrefrainingtoactasaresultofanymaterialinthispapercanbeacceptedbytheICAEWortheAuditandAssuranceFaculty.
ISBN:978-1-84152-985-1
March2010
Grantsfromgovernment,theEuropeanCommissionandotherorganisationscanbemajorsourcesoffinanceformanyUKpublicsectorbodies,businesses,charities,voluntarygroupsandacademicinstitutions.Recipientsareoftenrequired,asaconditionofthegrant,toasktheirauditors(orindependentaccountants)toreportontheirgrantclaims.
Thisframeworkdocumentdescribestheprocessbywhichreportsarerequestedfromaccountantsandhighlightssomecommonpitfallsthat,withproperplanningandgoodcommunication,caneasilybeavoided.Theobjectiveoftheframeworkdocumentistohelpall parties involvedwiththegrantreportingprocess.
• AccountantsGrantsdifferwidelyinnatureandcomplexity,sorequestsforreportscanalsobewide-ranging.Thisframeworkdocumentoutlinesthereportingpracticalities(fromplanningtoreportingstage)thataccountantsneedtoconsiderwhentheyareaskedtotakeonsuchanengagement.
• Grant-paying bodiesObtainingindependentaccountants’reportsisoftenanexcellentwayforgrant-payingbodiestogainassuranceonhowrecipientshaveusedtheirgrantfunding.Thisframeworkdocumentprovidessomegoodpracticeprinciplesthatgrant-payingbodiesmayfindusefulwhendesigninggrantschemesandwhichmayhelptomakethesearrangementsmorepracticableandcost-effectiveforall.
• RecipientsAcceptanceofgrantfundingcomeswithanobligationtocomplywithallofthegrant’sconditions.Itisthereforeimportantthatgrantrecipientshaveafullunderstandingofthereportingrequirements,andalsoobtainconfirmationthattheiraccountantwillbeabletoprovidetherequiredlevelofassurance.Thisconfirmationshouldbeobtainedatthegrantacceptancestage,ratherthanriskencounteringproblemslaterwhenfailuretoprovideassurancecanresultinclaw-backofgrantfunds.
Ifallthepartiesworktogetherandholddiscussionsearlyandattheappropriatestages,thiswillmakeforamoreeffectivegrantsprocess.Grantrecipientswillbeabletoaccessfundsquicklyandefficiently,whilegrant-payingbodieswillbeabletogaintheassurancethattheyrequirethroughthemostappropriateandcost-effectivemeans.Althoughthisguidanceprovidesseparatesectionsforeachpartytothegrant,westronglyrecommendthatallpartiesreadthewholedocumentsothattheyarefamiliarwiththeresponsibilitiesoftheotherpartiesaswellastheirown.
John ChastneyChair of the Public Sector Special Reports of Accountants Panel
Mike UsherChair of Public Sector Special Reports of Accountants Stakeholder Forum
FOREWORD
CONTENTS PAGE
SECTIONA:BACKGROUND 5HowthisframeworkcanhelpScopeofthisframeworkEffectivedate
SECTIONB:PARTIESTOTHEREPORTINGFRAMEWORK–THEIRROLESANDRESPONSIBILITIES 7SponsoringbodiesGrant-payingbodiesGrantrecipientsPartnershipsandcollaborationsIndependentaccountantsStatutoryauditagencies
SECTIONC:CONSIDERATIONSFORGRANT-PAYINGBODIES 10DesignofanewgrantschemeSettingoftermsandconditionsFactorstodeterminethereportingstructureWhoisbestplacedtoprovideareportDutyofcareTypesofengagementFactorsaffectingthetypeofengagementrequiredScope,natureandextentofworkFormatandwordingoftheaccountants’reportMatterstoconsideratthereportstage
SECTIOND:CONSIDERATIONSFORREPORTINGACCOUNTANTS 17Engagementterms Agreeingonengagementterms
LiabilityScopeofworkFormatofreport
ConfidentialityissuesDataprotectionFraudandillegalactsFreedomofinformation
SECTIONE:CONSIDERATIONSFORGRANTRECIPIENTS 22ApplicationprocessGrantofferandacceptanceResponsibilitiesandobligations Systemsanddocumentation
InterimclaimsFinalreturns
DutyofcareTypesofengagement
APPENDICES 24AppendixA: ListoftermsandconditionsthatcouldbeusefullyincludedinagrantschemetoprovideclarityAppendixB:Typesofengagements–optionsanalysisAppendixC:ProformareportsAppendixD:Examplesoftypesofwordingoropinionsthatmaynotbeacceptabletoaccountantsproviding specialreportsAppendixE:ExampleofamodeltripartiteengagementletterAppendixF:ExampleofstandardisedtermsofengagementAppendixG:Exampleofclarificationlanguageforanaccountants’reportAppendixH:LiabilitycapsandproportionalityclauseGLOSSARYOFTERMS 44
BIBLIOGRAPHY 47
ACKNOWLEDGEMENTS 48
5Frameworkdocumentforaccountants’reportsongrantclaims
SECTIONABACKGROUND
1. Thepublicsectorisresponsiblefortheprovisionofpublicservicesandfortheproperuseofpublicfunds.Animportantwayinwhichpublicsectorbodiescanachievetheirobjectivesisbyfundingtheactivitiesofotherorganisations.GrantfundingisprovidedbygovernmentdepartmentsandotherbodieswhichareultimatelyaccountabletoParliamentand/ortheEuropeanCommissionandwhichneedtomakegrantpaymentsinaccordancewiththelawandtherequirementsofpropriety,regularityandvalueformoney.
2. Similarconsiderationsapplytograntsbyortouniversities,charitiesandbusinesses.
3. Grantshavebecomeanessentialfundingstreamformanypublic,privateandnot-for-profitorganisationsandcanbeakeysourceofincomefor:
• charitableandvoluntaryprojects;
• environmentalandsustainabilityprojects;
• encouraginginnovation;
• helpingbusinessesdevelop,growandsucceed;
• developingpartnershipsonsocialprojects;
• developinginternationaltrade;and
• increasingtheUK’scompetitivenessandstrengtheningitseconomy(subjecttostateaidrules).
4. Onalargerscale,grantsareprovidedtofundcapitalexpenditureintheUK’sinfrastructure(eg,thebuilding,improvementandmaintenanceofourhighways)ortoaidinresearchanddevelopmentofnewandinnovativeprojects.
5. UKorganisations,largeandsmall,acrosstheprivate,publicandnot-for-profitsectorsreceivegrantfunding(referredtointhisdocumentas‘grantrecipients’)andsignificantamountsofmoneycomefromtheEuropeanCommission.Eachyearseesanumberofnewgrantschemessetuptohelporganisations.Insomecases,thefundingismadeavailabledirectlyfromthegrant-payingbody,whileinothercasesitismadeavailablethroughanintermediary.Someoftheresearchgrantsthatarenowavailableseektopromoteinternationalcollaboration.
6. Wheregrantfundingismadeavailablebycentralgovernmentonanunhypothecated1basisto,forexample,localgovernmentbodies,thisdoesnotrequireindependentaccountants’reports.
7. Beforeanygrantfundingschemeismadeavailabletograntrecipients,itisdesignedanddevelopedindetailbythegrant-payingbody.Grantschemescansometimesbecomplicatedandmayhavecomplexconditionsthatgrantrecipientsneedtounderstandandbeabletocomplywith,fromtheapplicationprocesstothereceivingandspendingofthemoneytothereportingonhowithasbeenused.Often,oneoftheconditionsoftheschemeisforthegrantrecipienttoobtainanindependentaccountant’sreportonwhetherthegrantmonieshavebeenspentforthepurposeforwhichthefundingwasprovidedandisinaccordancewithboththetermsandconditionsoftheschemeandtheofferletterattachedtothatspecificgrant.
8. Beforeissuinggrants,grant-payingbodiesneedtodecidewhatsortofevidencetheyrequiretoconfirmthatgrantmonieshavebeenspentonlyoneligiblecosts,orthatschemeobjectiveshavebeenachieved.Theyalsoneedtodecidewhethertoobtainevidencedirectlyfromthegrantrecipientorfromindependentthirdparties.Grant-payingbodiesoftendecidetouseaccountants’reportsandincorporaterequirementsfortheseintograntschemes.Itisworthnotingthatwhileaccountantsmaybebestplacedtoreportonfinancialinformationandothermeasurableoutcomesrelatedtofinancialreporting,accountants’reportsmaynotbecapableofprovidingformsofevidenceforallschemeobjectives.
1SeeGlossary
6 Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLE1:CLARITYISNEEDEDABOUTWHATISREQUIRED
Foronemajorinitiative,accountantswererequiredtocertifythatgrant-fundedexpenditure‘wasinaccordwithParliament’sintentions’.
Whereeligibleexpenditureisclearlydefinedinanofferletterortheaccompanyingtermsandconditions,accountantswillusuallybeabletoperformsuitabletestsandreporttheirfindings.
However,theycannotbeexpectedtoknowwhatwasinministers’mindswheninitiativeswereproposedandwhatMPssaidduringdebates.
How this framework can help
9. Accountantsandgrant-payingbodiesshareacommondesiretoachievegreaterconsistencyintheprinciplesadoptedinreportingongrants.Thereneedstobeclarityaboutwhataccountantsareabletoprovide2aswellasthestatutory,regulatoryandproprietyrequirementsthatgrant-payingbodieshavetoobservewhenrequiringsuchreports3.Achievinggreaterconsistencyamongallgrant-payingbodieswillbedifficult.However,thisframeworkdocumentprovidesgoodpracticeguidelinestohelpgrant-payingbodiesdecidewhatformofreporttheyneedandthebestwayinwhichtosecureit.
10. Thisdocumentusesasaframeworkthegrantslifecycle,fromtheinitialdesignanddevelopmentofagrantschemeandthedraftingofofferlettersthroughtoobtainingindependentaccountants’reportsontheuseofthemoniesatcompletionofagrant-fundedproject.Itconsidersthestepsthateachpartyneedstogothroughtomaketheprocesseconomical,efficientandsufficientlyeffectivetoenablethegrantrecipienttoaccessthefunding.Italsoprovidesgrant-payingbodieswithsomegoodpracticeprinciplestoenablethemtodecidebetweenthetypesofengagementandformsofreportthattheycanobtainfromindependentaccountantstogaincomfortthatgrantmonieshavebeenspentoneligiblecosts,forthepurposesintendedandinaccordancewiththetermsandconditionsofthescheme.
11. Inconsideringtheprincipleswithinthisframeworkandindeterminingthetypeofengagementrequiredofareportingaccountant,grant-payingbodiesareencouragedtotakearisk-basedapproachtotheprocessesthattheyputintoplace.Thisshouldstrikeanappropriatebalancebetweenthesize,natureandvalueofthegrant,andtakeintoaccounttheperceivedrisksassociatedwiththegrantandtheorganisationsthatarebeingfunded(someofwhichmaybesmallvoluntaryorganisationsorcommunitygroups).
12. Theframeworkimposesnomandatoryrequirementsbutisintendedtobehelpfultothoseinvolvedinprovidingspecialreportsongrantsandreturnsandalsotothegrant-payingbodiesthatreceiveandrelyonsuchreports.
Scope of this framework
13. Thereisawiderangeofsupportavailabletobusinesses,charitiesandothervoluntaryorganisationsthroughgrantsandotherfunding.Thisframeworkdocumentisrestrictedtoinstanceswhengrantfundingisprovidedtoorganisationsfromgovernmentandcharitiesandwhenthegrantsrequirereportsfromindependentaccountants.(Forotherfundingthatorganisationsreceivewhichrequiresareporttothirdparties,accountantsshouldrefertoICAEWguidanceAudit01/01,Reporting to Third Parties.)
14. ThisframeworkdocumentdoesnotcoveranygrantscertificationregimethathasbeensetupasaresultofseparatelegislationbystatutoryauditagenciessuchastheAuditCommission.
15. Thisframeworkdocumentisdesignedtoprovidegoodpracticeprinciplesinrelationtoreportingongrantclaimsandreturns.Itdoesnotconsiderwhethergrantrecipientshavetakenreasonablestepstoachievevalueformoneyanditdoesnotseektoaddresswhetherorganisationsareachievingefficiencysavings.
Effective date
16. Theimplementationdateofthisframeworkforreportingaccountantsis1April2010,fornewgrantschemesdevelopedonorafterthisdate.Itwouldbehelpfulifgrant-payingbodiesweretoconsiderapplyingthegoodpracticeprinciplesinthisframeworkfornewschemesdevelopedfrom1April2010.
17. Thenewframeworkdoesnotapplytoexistinggrantschemeswhosetermsandconditionsarealreadyinplace(includingthoseforwhichthegrantmaybepaidonaphasedbasis).Thereisnothing,however,tostopgrant-payingbodiesconsideringthegoodpracticeprinciplesinthisframeworkforexistinggrantschemesandusingthemasabenchmarkwhenthetermsandconditionsofeachschemearereviewed.
18. Audit3/03,Public Sector Special Reporting Engagements – Grant Claimswillremainextantforschemesinoperationbefore1April2010andcontinuingafterthatdatewheretheprinciplesoutlinedinthisnewframeworkhavenotbeenadopted.
2 Accountantsreportstothirdpartiesarenormallygovernedbyinternationalstandards(inparticular,ISAE3000,Assurance Engagements other than audits and reviews of historical financial information,andISRS4400,Engagements to perform agreed upon procedures regarding financial information.
3 IfthegrantinquestionispartlyorfullyEU-funded,requirementsforaccountantsaresetintherelevantEUlegislation.
7Frameworkdocumentforaccountants’reportsongrantclaims
SECTIONBPARTIESTOTHEREPORTINGFRAMEWORK–THEIRROLESANDRESPONSIBILITIES
19. Thereareanumberofpartiesthatmayhaveadirectandrelevantinterestinthereportingarrangementsforanewgrantscheme:
• sponsoringbodies;
• grant-payingbodies;
• grantrecipients;
• partnerorganisationsthatsharetheworksupportedbythegrant;
• independentaccountants;and
• statutoryauditagencies.
20. Thesevariouspartiesgenerallyfallintothethreemaincategoriesthatarecoveredinthisdocument:grant-payingbodies,grantrecipientsandaccountants.Eachcategorywillbeaffectedtovaryingdegreesandtheremayalsobedifferentuserswithinthevariouscategorieseg,internalauditdepartmentsofsomegrant-payingbodiesmayreviewthereportswhentheyevaluatetheirownoverallinternalcontrolframeworks.Thechainofresponsibilityforanawardedgrantcansometimesbelongwithanumberofintermediaries.Theremustbeappropriateconsiderationofthereportingrequirementsateachleveltoensurethattheneedsandrequirementsofallpartiesaremet.Thiswillmeanthatthegrant-payingbodiesneedtoensurethatallintermediaries,ateachlevel,havethenecessaryknowledgeaboutthegrantscheme,theprocessesandtheproceduresinplacetodeliverthegrantobjectives.
GrantRecipient
(SectionE)
IndependentAccountant(SectionD)
StatutoryAuditAgency
(SectionB)
SponsoringBody
(SectionB)
Grant-payingBody
(SectionC)
InternalAudit
(SectionC)
8 Frameworkdocumentforaccountants’reportsongrantclaims
Sponsoring bodies
21. Sponsoringbodies(suchastheEuropeanCommission)whicharetheultimatepublic-sectorfundersofanactivitymaychoosetopassthefundingthroughasinglegrant-payingbodyorachainofgrant-payingbodiesratherthandirectlytothegrantrecipient.Sponsoringbodiescansometimesgivegrantsdirectly.ForexampleinNorthernIreland,theministerialgovernmentdepartmentsdistributelargequantitiesofgrants.Sponsoringbodiesrequireevidencethatallmoniespaidoutingrantstograntrecipientsarefullyaccountedforandareusedinaccordancewiththegrantconditions.WithinUKcentralgovernment,thesesponsoringbodieswilleachnormallyhaveanaccountingofficer.Thisisfundamentallyimportant,astheaccountingofficerisultimatelypersonallyaccountableforallfundsflowingfromthebodyanditisinpartbecauseofthisthatsupportingevidencesuchasindependentaccountants’reportsaresought.Sometimesthesponsoringbodyprovidesgrantsdirectlytograntrecipientswithoutgoingthroughagovernmentdepartment.Inthiscontext,thesesponsoringbodiesarereferredtoasgrant-payingbodiesinthisframeworkdocument.
Grant-paying bodies
22. Thesearethebodiesthatprovidefundingdirectlytothegrantrecipient.Grant-payingbodiesusuallyrequireevidencethatthemoniespaidoutingrantsarefullyaccountedforandareusedinlinewiththegrantconditions4.Wherethegrant-payingbodyisactingasanintermediaryforasponsoringbody,thenitmayberesponsibletothatsponsoringbodyforprovidingevidencethatithasdisbursedthegrantaccordingtothesponsoringbody’scriteriawhilelookingtothegrantrecipienttoprovideevidenceofeligibilitytoreceivethegrantandtoconfirmthatithasbeenusedforthedesignatedpurposes.Thusthegrant-payingbodysetsthetermsandconditionsofthescheme.Thedevelopmentoftheseiscrucialanditisessentialthatthegrant-payingbodyconsidersthetermsandconditionscarefully,consultingwithallappropriatestakeholdersbeforefinalisingthem.
23. Grant-payingbodieswillneedtobeclearabout:
• thepurposeforwhichtheyrequiretheaccountants’report;
• thetypeofengagement;
• thetypeofassurancetheyrequire;
• theformatofthereport;
• whattheyintendtodowiththereportoncetheyreceiveit;and
• thetimelinessandfrequencyofthereport.
24. Thegrant-payingbodywillconsidertheinitialapplicationfromthegrantrecipientbasedontheinformationprovided.Itishelpfulforgrantrecipientstobegivenguidanceandsupporttoenablethemtoprovidethenecessaryinformationatthestatedtimes.Grant-payingbodiesneedtobeabletoprovidepromptandtimelyclarificationtobothgrantrecipients’andaccountants’queriesandbeabletofollowuponissuesraisedbyaccountantsintheirreports.
Grant recipients
25. Thesearethebodiesreceivingfundsfromthegrant-payingbody.Theyareresponsibleforprovidingevidencethattheymeettheeligibilitycriteriaforexpenditurefinancedbythegrant-payingbody,andfordemonstratingthattheyhaveusedthegrantforitsdesignatedpurpose.Whenmakinganapplicationtheyneedtounderstandthetermsandconditionsofthegrantandinparticulartheirresponsibilitiesandobligationsinrelationtothegrant.
26. Grantrecipientsareultimatelyresponsiblefor:
• providingevidencethatthegrantmoniesarespentinaccordancewiththetermsandconditionsofthegrantandforthepurposesintended(eg,progressreporting,givingnoticeofunderspends);
• maintainingeffectiveadministrativeandfinancialsystemstosupportandrecordthetransactionsinrelationtothegrantscheme;
• keepingsupportingdocumentationandevidenceoftransactionsonbothincomeandexpenditure;
• operatingeffectivesystemsformonitoringdelivery(includingpartners)andinternalcontrol;
• preparinginterimandfinalclaimsandreturnsaccuratelyfortherelevantperiodsandbytheprescribeddeadlines;
• ensuringthatanyrequirementtoobtainanaccountants’reportonagrantclaimcanbemetbeforeacceptingagrant;and
• whererequired,engagingindependentaccountantstoreportonclaimsandagreeingthetermswhichmustbeconsistentwiththerequirementsofthefundingconditions.Wherepossible,thisshouldbeatripartiteagreementwiththegrant-payingbodyandtheindependentaccountants;otherwise,itshouldrefertothesetofstandardisedtermspublishedbythegrant-payingbody.
4 IntheUK,thiswilltypicallybeinlinewithHMTreasury’sguidancetofunders,Managing Public MoneyandtheWelshAssemblyGovernment’sManaging Welsh Public Money. WheremoneyhascomefromtheEU,grantconditionswillbesetbytheEuropeanbodyresponsibleforthegrantscheme.
9Frameworkdocumentforaccountants’reportsongrantclaims
27. Ifgrantrecipientsareunclearabouttheirresponsibilities,theyneedtodiscussthesefurtherwiththegrant-payingbodies(seeparagraph24above).
Partnerships and collaborations
28. Whereagrantrecipientispartofapartnership(withanumberoforganisationsreceivingthegrant)thepartnershipisusuallyunderobligationtoappointaleadpartnerwhowillhavetheresponsibilitiesoutlinedunderparagraph25.Thereshouldbeasignedagreementsettingouttherolesandresponsibilitiesofeachpartyinrelationtothedeliveryofthescheme.Theleadpartner,actingastheaccountablebody,mayneedtodrawalltheinformationtogetherinoneplace.Insomecases,theleadpartnermayberesponsibleforthedistributionofthegrantandforpenaltiesandclawbacksandmaythereforetakeonmuchoftheroleofthegrant-payingbody(describedunderparagraph22).Thepartnerswillneedtounderstandthattheaccountantswillnormallyhavearightofaccesstoallthepapersinrelationtotheuseofthegrantmonies.Insomecases,therewillnotbeadesignatedleadpartnerwhichmeansthatallpartnerscouldhavejointandseveralliability.WiththeincreaseinfundingreceivedfromEurope,internationalcollaborationsarebecomingincreasinglycommonplace:FrameworkProgramme7projects,forexample,arecollaborations.
29. Eachpartnermustensurethatindividuallyitiseligibletoreceivethegrantmoneyandthatitspendsitsallocationinaccordancewiththetermsandconditionsofthescheme.Itmustalsoprovidetheleadpartnerwithallthenecessaryinformationthatitwillneedtoconfirmthiswithinthedatesset.Foreaseofreference,whereorganisationswithinpartnershipsandcollaborationsindirectlyreceivegrantfunding,theyarereferredtowithinthisdocumentasgrantrecipients.
Independent accountants
30. Accountantsarenormallyengagedtoprovideanindependentreportonthegrantrecipient’seligibilitytoclaimexpenditureand/oruseofthegrantmonies.Althoughthereportsareissuedtothegrantrecipientwhowillbetheclient,itisrecognisedthatthereportsarealsoprovidedfortheuseofgrant-payingbodiesandworkisusuallycarriedoutintheknowledgethatthegrant-payingbodywillseethereportandmayrelyonit(seeparagraphs41to43).
31. Accountantswillconsidertheinformationcontainedwithinaclaimorreturninaccordancewithappropriateproceduresoranagreedscopeofworkandwillprovideanaccountants’report.Theywillneedtofamiliarisethemselveswithboththetermsandconditionsofthegrantschemeandrelatedofferletterandinparticularwhatinformationtheywillneedinordertobeabletoprovidethereportthatthegrant-payingbodyisseeking.Accountantsneedtoensurethatthetermsonwhichtheyareengagedareconsistentwiththerequirementsofthefundingconditionsandrelevantstandardsonengagements.Wherepossible,thisshouldbeatripartiteengagementwiththegrant-payingbodyandthegrantrecipient;alternativelyitshouldrefertothesetofstandardisedtermspublishedbythegrant-payingbody.Furtherinformationisdetailedinparagraph79.
32. Accountantshaveadutytotakereasonablecareinpreparingandprovidingthereportonatimelybasis,buttheyshouldnotbepressuredintomeetingdeadlinesifclaimsareonlyprovidedatshortnotice.
Statutory audit agencies
33. Whileindependentaccountantsarenormallyengagedtocarryoutworkandprovideanindependentreportonthegrantrecipient’seligibilitytoclaimexpenditureand/oruseofthegrantmonies,statutoryauditagenciescanprovidesimilarassurance.Statutoryauditagencies(theNationalAuditOffice,AuditCommission,WalesAuditOffice,AuditScotlandandtheNorthernIrelandAuditOffice)willoftenprovidereportsongrantsreceivedbypublicbodiesaswellasexaminegrantsgivenbypublicbodies.AsthestatutoryauditorsofUKpublicsectoraccounts,somereviewtheadequacyofmanagementproceduresforthecontrolofgrantexpenditureandconsiderwhethergrantscomplywithlegislationandprovidevalueformoney.Theymayalsoreporttothirdparties,suchastheEuropeanCommission,onspecificengagements.Theagenciesmayalsoactastheauditor(orappointauditors)tolocalgovernmentandNHSbodiesandhavetheirownarrangementsforcertificationofthoseclaimswhichfalloutsideofthisguidance.Someofthesearrangementsmaybeenshrinedinlegislation.Itisoftenhelpfultoconsultstatutoryauditagenciesonthedocumentaryevidencejustifyinggrant-fundedexpenditurethatthegrantrecipientmayberequiredtokeep.
10 Frameworkdocumentforaccountants’reportsongrantclaims
SECTIONCCONSIDERATIONSFORGRANT-PAYINGBODIES
Design of a new grants scheme
34. Aspecificgrantschememayincluderegulationsthatareportwillberequiredtoconfirmthatthemoneyhasbeenspentforthepurposeintendedandinaccordancewiththetermsandconditionsofthescheme.Fornewschemesthatarebeingdesigned(whereanOrderorStatutoryInstrumentorActisbeingdrafted)orwheretherequirementsforanexistinggrantschemearebeingamended,itishelpfulifthegrant-payingbody(inconjunctionwiththesponsoringbody)considersthetermsandconditionsandthereportingstructure.
Setting of terms and conditions
35. Termsandconditionsofanyschemeneedtobesimple,clearandeasytofollowandproportionatetothesizeandnatureofthegrantandtheorganisationsthatarebeingfunded(someofwhichwillbesmallvoluntaryorganisationsandcommunitygroups).AppendixAprovidesachecklistidentifyingexamplesofthetypesofitemsthatagrant-payingbodymaywishtoincludewhensettingthetermsandconditionsofagrantscheme.
Factors to determine the reporting structure
36. Aspartofthetermsandconditions,grant-payingbodieswillneedtoconsiderthepurposeforwhichtheyneedareport,whatthereportshouldcover,andtheprocessbywhichtheyrequirethereporttobeprovided.
37. Relevantfactorsforgrant-payingbodiestoconsiderincludethefollowing:
• Whatisthenatureandriskassessmentofthegrantscheme?
• Whatarethetypesofbodythatwillbefunded?
• Whatarethesizeofgrantsthatwillbeawarded?
• Whatisthepurposeofthereportandisitproportionatetotherelativerisk,sizeofgrantandtypeofbodiesthatwillbefunded?
• Isthereaminimumlevelofgrantbelowwhichareportwillnotberequired?
• Arethereexistingsourcesofassurancealreadyinplacesuchasspotchecksorinternalassurancemechanisms,andthereforeisaseparatereportneeded?
• Whatformofreportisrequired(seemodelreportsinappendixC)?
• Whatarethecontracttermsunderwhichthereportisrequired?(seeexample3below)
• Whowouldbebestplacedtoprovidethisreportandareaccountants’reportsaneffectivesourceforfullorpartialassurance?
• Ifso,howwillthegrant-payingbodysecurethisengagementie,willitengagedirectlywiththeaccountantsorviathegrantrecipientandwillitexpectadutyofcarefromtheaccountant?
• Whereanindependentaccountants’reportisrequired,willthereneedtobeclarityabouttheacceptablequalificationsoftheaccountant?
• Whatwillthegrant-payingbodydowitheachreportonceitisreceived?
• Whowithinthegrant-payingbodywillberesponsibleforanalysingtheinformationcontainedintheaccountants’reportsandactinguponthisinformation?
• Howwillthegrant-payingbodydealwithreportsthatdonotprovidetheconfirmationrequired?
EXAMPLE2:SETTINGTHETERMSANDCONDITIONS
Specifyingwhatis(andisnot)eligibleforgrantandwhatevidencethegrantrecipientneedstomaintainisveryimportantespeciallywhengrantsareawarded.Thishelpsavoidmisunderstandingsandmistakeslater.Throughlackofclarity,errorscandamagebothfinancesandreputations,forexample:
• overpaymentsandalackofsupportingdocumentaryevidenceledtotheEuropeanCommission demandingreturnsof£31mfromnorthwestEnglandand£12mfromWalesin2008;and
• severalgrant-payingbodiesaswellasgrantrecipientshavebeenwounduporreorganisedafter seriousmismanagementofgrants.
11Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLE3:STANDARDISEDCONTRACTTERMSUNDERWHICHAPARTICULARTYPEOFENGAGEMENTISREQUIRED
Itisoftenthecasethatthegrant-payingbodywillrequestareportwhichcontainsawordingrequiringconfirmationsuchas‘the claim is in accordance with the grant-paying body’s offer letter including the schedules thereto’or‘the service has been rendered in accordance with the grant agreement’.
Manyoftheseofferlettersandgrantagreementscanbeverylengthyandcontainconditionsrelatingtoavarietyofmatters.Thesecaninclude:
• preconditionswhichmustbeinplacebeforeaclaimcanbesubmitted;
• inthecaseofcollaborativegrants,therequirementforallparticipantstoenterintoacollaborationagreementandprovideacopytothegrant-payingbody;
• compliancewithEUprocurementprocedures;and
• datesbywhichtheclientisrequiredtosubmitspecifiedclaimsforthevariousinstalmentsofgrant.Thereareanumberofinstancesinwhichthegrant-payingbodythenagreestoacceptalateordelayedclaimbutdoesnotamendthewordingoftheofferletter/agreement.
Inordertoconfirmthattheexpenditureonwhichanaccountantisreportingisinaccordancewiththetermsandconditionsoftheofferletter,itisnecessaryfortheaccountantstobesatisfiedthatsuchtermsasoutlinedintheexampleabove,havebeencompliedwith.Thiscanresultin:
• extraworkfortheaccountants;
• theassociatedextracostfortheclaimant;and
• additionalreservationsinareportinrelationtomattersalreadyknowntothegrant-payingbodyparticularlyinrelationtopreconditionsandlatesubmissionofgrantclaims.
Who is best placed to provide a report?
38. Thegrant-payingbodyneedstodecidewhomitrequirestoproduceareportbasedonanumberoffactorswhichinclude:
• theriskassessmentoftheoverallgrantschemecarriedoutduringthesettingofthetermsandconditions;
• themonitoringarrangementsalreadyinplace;
• theamountofgrantthateachindividualgrantrecipientislikelytoreceiveeg,iftheamountsaresmall,considerthemostcost-effectivemethodtoobtaintherequiredreport;and
• ifthereportisrequiredforaspecialistarea,whohasthenecessaryskillsandknowledgeofthatareatoprovidetherequiredreporteg,forcapitalworksareportbyeitheranarchitectorcostconsultant(formerlyaquantitysurveyor)mightbethemostappropriatemethodofgettingthenecessaryassurance.
39. Thegrant-payingbodyneedstoconsiderwhichofthefollowingwillbebestsuitedtoprovidethereportthatitrequires:
(a) The grant recipient (through self-certification)–ifthevalueoftheamountofgrantallocatedtoagrantrecipientorthenumberoftransactionsissmall,itmaybemorecost-effectivetohavethegrantrecipientself-certify.Thisreliesentirelyonthegrantrecipientprovidingtherequiredinformationaccurately.
(b) The grant recipient’s internal auditors–thisfallsintoasimilarcategoryto(a)above.Thereportwouldbeprovidedbysomeoneotherthantheofficerwithintheorganisationthatreceivedthegrant.Althoughtheinternalauditorsmaynotbeindependentoftheorganisation(unlesstheInternalAuditServicehasbeenoutsourced),theydoformpartoftheinternalcontrolframeworkoftheorganisationandwillbeindependentofthegrant-receivingdepartment.Thecostwouldbeminimalastheyareinternaltotheorganisationbutgrant-payingbodieswouldneedtoprovidedirectiononwhatneedstobedoneandbywhen.
(c) The internal auditors of the grant-paying body–somegrant-payingbodieshavelargeinternalauditdepartmentswhichmaybeusedtocarryoutchecksontheuseofgrantmonies.Ifthenumberofgrantswashighbutthevalueofeachwaslow,thenrandomspotcheckscouldbecarriedout.Thishastheadvantagethatthegrant-payingbodycandetermineitsownscopeofworkanddecidewhetheritwishestotargetcertaingrantrecipientsorcategoriesofgrantrecipients.Themaindisadvantageisthatitprobablywouldnotbeabletocarryoutchecksofallgrantrecipientseachyearsoarollingprogrammeofvisitsmayneedtobeorganised.Basedontheoverallriskassessmentandcost-benefitanalysis,thegrant-payingbodywouldneedtodecide
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whetheritwanted100%coverageofbodiesovertimethroughtherollingprogramme.Thecostofthistypeofverificationwouldusuallyfalltothegrant-payingbody.Thisapproachcouldbecombinedwitheither(a)or(b).
(d) Specialists–sometimesthegrantisforapurposewhichmayneedspecialistknowledge.Itwouldseemsensibleinthesecasesforeitherspecialists(suchasenvironmentalauditors)orasinglefirmthathasknowledgeandskillsofthespecialistareatoprovidereportsfortheentiregrantscheme.Havingasinglefirmcarryoutthisworkcouldhelptoreducethecostsoftheengagement,asthespecialistswouldbuildupknowledgeofthegrantscheme.Itmayalsobuildtheconfidenceofthegrant-payingbodyinthefirm.However,thefirmwouldnotnecessarilyhaveanin-depthknowledgeofeachorganisationthathasreceivedagrantthroughthescheme.
(e) Independent accountants who are also the statutory auditors of the organisation–thiswouldprovidegrant-payingbodieswithanindependentreport.Usingtheexistingexternalauditorscouldbeadvantageousastheywillhaveanin-depthknowledgeoftheorganisation.However,theworkwouldneedtobecarriedoutunderaseparateengagement.Usingindependentaccountantswillalsoaddtothefeesthattheorganisationhastopayandthesecostsmaynotalwaysbeeligibleforgrant.Ifthegrant-payingbodyalsorequiresareportontheorganisation’ssystemsandcontrols,thiswouldbethesubjectofaseparateengagement.
(f) Independent accountants who are not the statutory auditors of the organisation–thiswouldprovideanindependentreport.Howeveranewfirmofaccountantsmaynothavethedetailedknowledgeoftheorganisationandmaythereforetakelongertobuildthatknowledgebeforecompletingtheworkormayevendeclinetoundertakegrantclaimworkforentitiesthatarenottheirclients.Iftheydoagreetotakeonthegrantclaimwork,theassociatedcostsmaynotbeeligibleforgrant.
40. Wherethegrant-payingbodyhascarriedoutitscost-benefitanalysisandhasdeterminedthat,becauseofthevalueoftheclaimandtheassociatedrisks,itrequiresanindependentaccountants’report,then(e)and(f)abovearelikelytobethechosenorrequiredoptions.Itwouldbehelpfulatthisstagetoconsultthisframeworkdocumentaboutthepurposeofthereport,thetypeofengagement,thescopeofworkand,finallythereportingrequirementsbeforeincludingthemintheenablinglegislation,OrderorStatutoryInstrumentorintotheschemetermsandconditions.Thegrant-payingbodyneedstoconsiderthefeasibilityofitsintendedrequirementsandwhetherwhatitrequires,andwhatitwantsareporton,isachievable.
Duty of Care
41. Whereagrant-payingbodyhasdeterminedthatitdoesrequireanindependentaccountants’report,itthenneedstoconsiderwhetheritalsowantsaformal‘dutyofcare’fromtheaccountantsandthendeterminethetypeofengagementthatwouldbebestsuitedtoprovideitwiththecomfortthatitrequires.
42. Thisdecisionwillaffectbothhow,andthewayinwhich,thegrant-payingbodysetsitsrequirementsforthereport.Theoptionsare:
(a) tripartiteormultipartiteengagementwiththegrant-payingbody(ies),thegrantrecipientandtheindependentaccountantswhichallowsthethreepartiestoenterintodialogueaboutthepurposeofthereport,thetypeofengagement,thescopeofworkandthesortofreportrequired.Inthiscase,theaccountants’reportwouldbeaddressedtoboththegrant-payingbodyandthegrantrecipient.Althoughthiswouldbeidealastheexpectationsofallpartieswouldbeclarified,forlargegrant-payingbodieswheretherearenumerousgrantschemesandalargenumberofgrantsareawarded,itmaynotbepracticaltohaveanengagementletterwitheachindividualaccountant.
(b) standardisedengagementtermsincludedaspartofthetermsandconditionsandofferlettertothegrantrecipient.Standardisedtermsincludethetermsunderwhichthegrant-payingbodyiswillingtocontractwithaccountantsattheoutset.Thesedonotrequirethegrant-payingbodytosignindividualengagementletterswithaccountants.AppendixFprovidesanexampleofstandardisedengagementterms.Accountantswouldtakeontheworkiftheyacceptedthestandardtermssetbythegrant-payingbodyimplyingadutyofcaretothegrant-payingbody.Inthiscasetheaccountants’reportwouldbeaddressedtoboththegrant-payingbodyandthegrantrecipient5.
43. Somegrant-payingbodiesareclearthattheyaredisclaimingadutyofcarefromaccountants.Ifthisisthecase,thisneedstobestatedinthetermsandconditionstothegrantrecipientsothatitisexplicitfromtheoutsettoallpartiesinvolvedintheprocess.Therefore,oncethegrant-payingbodyhasissuedtheofferletter,theengagementisbetweenthegrantrecipientandtheaccountants,andsotheaccountants’reportshouldbeaddressedsolelytothegrantrecipient.
5 TheEuropeanCommissionhasdevelopedsuchastandardisedsetofengagementtermsaspartofitsFrameworkProgramme7.
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Types of engagement
44. Thisframeworkdocumentoutlinesthreemainoptionsforanaccountants’report:
• reasonable assurance–providesa‘reasonableassurance’reportintheformofapositivewordedconclusion;
• limited assurance–providesa‘limitedassurance’reportintheformofanegativewordedconclusion;and
• agreed-upon procedures–doesnotcontainanassuranceconclusion,butsetsouttheagreedscopeofworkandproceduresundertaken,thefindingsfromtheprocedures,alongwithdetailsofanyexceptionsthataccountantshaveidentifiedfromtheirwork.
45. TheadvantagesanddisadvantagesofeachofthesethreeoptionsaresetoutinmoredetailinappendixB,withexamplemodelreportsforeachoptioninappendixC.Thereportingaccountants’considerationsareoutlinedinsectionDofthisframeworkdocument.Itisimportanttoappreciatethatitisnotpossibletocombinethethreeoptionseg,choosingthe‘agreeduponprocedures’optionbutexpectinga‘reasonableassurance’conclusion.
46. Ifmorehelpisneededtodeterminetheappropriatetypeofengagement,grant-payingbodiesmaywishtoconsult,asappropriate,withtheaccountants(whowillbeundertakingtheworkonthegrantclaim),thestatutoryauditagenciesandprofessionalbodies.Thiswillhelptoensurethattheexpectationsofallpartiesaremetandavoidproblemsthatcanariseduringtheprocess.
Factors affecting the type of engagement required
47. Keyfactorsindeterminingthetypeofengagementrequiredfromaccountantsinclude:
• theinformationthatthegrant-payingbodywantsfromtheaccountants’report;
• anypre-existinglegislativerequirementsthatspecifythenatureoftheaccountants’report;
• thelevelofprescriptionthatthegrant-payingbodyexpectsregardingthescope,natureandextentofthetestingtobecompletedbytheaccountants(orconversely,theamountofjudgementthataccountantsareexpectedtoapplywhenundertakingtheirwork);
• thelevelofconsistencythatthegrant-payingbodyexpectsinthescope,natureandextentoftestingtobecompletedbyaccountantsforanyspecificrangeofgrants;
• thecost-benefittrade-offthatmayexistbetweenthedifferenttypesofengagementsthatareavailable;
• anyevidenceorotherassurancethatthegrant-payingbodymayobtainfromothermeans(eg,self-certification);and
• theexpectationsorrequirementsofotherstakeholdersthatmayneedtomakeuseoftheaccountants’report,suchasthegrant-payingbody’sownexternalauditors.
48. If,forwhateverreason,theformandcontentoftheaccountants’reportisdeemedtobeparamount,orisprescribedbylegislation,thenthismaydeterminethetypeofengagementthathastobeprovided.Theformandcontentoftheaccountants’reportwilllargelybedeterminedbythetypeofengagementchosen.Itisnotpossible,forexample,tomandatetheexactproceduresthataccountantsmustundertake(otherthanasaminimum),withnoscopefortheaccountanttoapplytheirjudgement,whileexpectingaccountantstoprovidea‘reasonableassurance’or‘limitedassurance’conclusion.Toprovidesuchanopinion,accountantsneedtheabilitytoundertakewhateverprocedurestheyconsidernecessarytobeabletoreachtheirconclusion.
49. Itisimportanttonotethat,whilethereissomecorrelation,thetypeofengagementrequiredisnotnecessarilydirectlyrelatedtothelevelofworkundertakenbyaccountants.Instead,thetypeofengagementlinksdirectlytowhocontrolsthescopeofworkandthejudgementthattheyareexpectedtoapplyincompletingtheirwork.Thismeansthatthereislikelytobeconsistencyintheworkcarriedoutamongaccountantswhoundertakean‘agreed-uponprocedures’engagementwheretheprocedureshavebeenagreedwiththegrant-payingbody.However,thereislikelytobegreaterdiversitywhena‘reasonableassurance’or‘limitedassurance’engagementisrequiredasaccountantswilleachbeapplyingtheirownprofessionaljudgementindeterminingtheproceduresthatarenecessarytoobtaintheevidencerequiredforthereport.FurtherguidancecanbefoundinappendixB,includingexamplesofwheredifferenttypesofengagementsmaybeappropriate.
50. Inchoosingthetypeofengagement,grant-payingbodiesmaywishtonotethatthecostofeachengagementwilldependonthesize,complexityandvalueoftheschemeandtheriskassociatedwithit.Butingeneraltermsa‘reasonableassurance’engagementmaycostmorethana‘limitedassurance’engagement,whichmayinturncostmorethanan‘agreed-uponprocedures’engagement.Thereasonsforthisrelatetotheadditionalproceduresthataccountantsarerequiredtoundertakewhenforminganopinion,whichtypicallyinvolvesthejudgementofseniormembersoftheengagementteam.An‘agreed-uponprocedures’engagementwillthereforeusuallybethecheapestengagementanda‘reasonableassurance’engagementthemostexpensive.
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51. Insomecases,thegrant-payingbodymaywishtoconsidersettingathreshold(usuallyofitsquantumofgrant)belowwhichinvolvementofaccountantsisnotrequired,onthebasisthatthecostoftheaccountants’workislikelytooutweighthebenefitofobtainingareportfromanindependentaccountant.Whetherornotthecostsofareportareeligibleforgrantisadecisionforthegrant-payingbodiestomakeonascheme-by-schemebasis.
52. Whereindependentaccountantsareappointed,thegrant-payingbody(andthegrantrecipients)shouldrecognisethattheaccountantswillnormallywanttohaveadiscussionwithboththegrant-payingbodyandalsothegrantrecipienttoclarifythebasisonwhichtheymayowethegrant-payingbodyadutyofcare.Furtherguidanceonthiscanbefoundinparagraphs77to80.
Scope, nature and extent of work
53. Thereareanumberoffactorsthatwillaffectthescope,natureandextentoftheworkthataccountantsarerequiredtoundertake.Theseincludethenatureandsizeofthegrantrecipient’sbusiness,thecomplexityofthegrantscheme,thenumberoftransactions,thenatureofthetransactionsandtheleveloferrororuncertaintythatthegrant-payingbodyispreparedtoaccept,theexperienceofthegrantrecipientandanyrelatedpartiesthatareinvolvedinthegrantsprocess.Thetypeofengagementmay,with‘reasonableassurance’engagementsandsome‘limitedassurance’engagements,requiremoreprocedurestobeundertakentoformaconclusiononthegrantclaim.
54. For‘agreed-uponprocedures’engagements,andpossibly‘limitedassurance’engagements,thescope,natureandextentoftherequiredworkshouldbeagreedbythegrant-payingbodyinadvance.Accountantswillthencompletethisworkandreportintheappropriateformat.Indeterminingtheamountofwork(includingsamplesizes),thegrant-payingbodywillthereforeimplicitlybedeterminingwhatlevelofoverallerrorand/oruncertaintyitispreparedtoacceptwhenassessingtheclaim.
55. If100%oftransactionsneedtobetestedthenthiswillhavecostimplicationsthatwillneedtobeconsidered;insomecasesitmaybeappropriate(eg,foragrantwithasmallnumberoflargetransactions).Theabilitytocarryout100%testingwilldependontherecordsmaintainedbythegrantrecipient.However,simplycheckingalltransactionstoinvoices,forexample,isnotalwaysproofthatthepaymentwaseligibleforgrant.Invoicescanbeamendedorcancelledandpricescanbemanipulated.
56. Inmostcases,itislikelythatthegrant-payingbodywillbecontentforworktobeundertakenonasamplebasis,althoughtestingofcertainkeyorhighvaluetransactionsmightstillbemandated.Inthiscase,thesizeofthesampletested(whetherdeterminedbyvalueornumber)willbedirectlyrelatedtothetypeofengagementandformofreportthatisbeingprovided.Thelargerthesample,themorelikelytheaccountantswillbeabletoidentifyanyerrorsorineligibleexpenditure.Thegrant-payingbodymaydeterminethatthesampleisrelatedtothevalueoftransactionseg,allthoseover£10,000or80%byvalue.
57. Whileitmaybeappropriateforagrant-payingbodytospecifyminimumproceduresfor‘reasonableassurance’andpossibly‘limitedassurance’engagements,accountantswillneverthelessneedtoapplytheirprofessionaljudgementinundertakingtheirwork.Toassistaccountantsinthis,grant-payingbodiesmaydecidetoindicatethe‘materiality’leveltowhichaccountantsneedtohaveregard.Thiswillhelpaccountantstodeterminetheleveloftestingandtheextentofevidencegatheringthatisrequiredinordertoreachtheiropinion.Thelowerthelevelofmateriality,thelargerthesampleandthegreatertheextentoftestingthataccountantswillneedtoundertakeinordertoprovidetherequiredconclusion.
58. Materialityhasbothqualitativeandquantitativeaspects.Inadditiontosettingeitherafixedmonetarylevelofmaterialityor,morecommonly,apercentagelevelofmaterialitythatvarieswiththesizeofthegrantclaim(quantitative),grant-payingbodiesmayalsowishtodiscusswithaccountantscertainspecifictypesoftransactionsthatmustbetestedirrespectiveoftheirmonetaryvalue(qualitative).
59. Thegrant-payingbodyneedstoagreeinadvancethescope,natureandextentofthetestingrequiredbyaccountantsfor‘agreed-uponprocedures’andpossiblyfor‘limitedassurance’engagements.Thiscanbedoneindiscussionwithprofessionalbodiesor,ifthereareonlyafewfirmsofaccountantscarryingoutthework,withtheaccountantsthemselves.Ifthisisnotdone,accountantswilleachneedtoagreethescope,natureandextentoftheirtestingonacase-by-casebasiswiththegrant-payingbody,tomitigatetheriskofundertakingalevelofworkthatdoesnotmeetthegrant-payingbody’sneeds.
EXAMPLE4:WHATFIGURESARETHEACCOUNTANTSREPORTINGUPON?
Reportsmustberelatedtoclaimsoraccountsinaspecifiedformat.
Agrant-payingbodyissueda‘certificate’fortherecipient’saccountanttosign–butdidnotprovideaclaimformorspecifyaformatfortheassociatedaccounts.Theaccountantdidnotknowwhatwasrequiredforthe‘entries’referredtointhecertificate.
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60. For‘reasonableassurance’andalsopossiblyfor‘limitedassurance’engagements,thegrant-payingbodyshouldindicatethematerialitylevelthataccountantsareexpectedtotakenoteofwhenundertakingtheirwork.Intheabsenceofanysuchguidance,accountantsmayneedtoagreethelevelofmaterialitywiththegrant-payingbodyonacase-by-casebasisordeclinetoaccepttheengagementonthebasisthatitisunclearwhattheevaluationcriteriafortheengagementareinmonetaryterms.However,boththeassessmentofmaterialityandtherelativeimportanceofquantitativeandqualitativefactorsinaparticularengagementultimatelyremainmattersfortheaccountants’ownprofessionaljudgement.
61. Itisalsoimportanttoensurethatthescopeofworkexpectedofaccountantsisappropriateanddealswithmattersthataccountantscanreasonablybeexpectedtotestandonwhichtheyformjudgements.Ifsuitablecriteriaforevaluationdonotexistand/orcannotbeagreedwithaccountants,itwillnotbepossibleforaccountantstoundertakethework,orspecificaspectsofthework.Thisislikelytoleadtoqualificationoftheaccountants’reportortoaccountantsbeingunabletoaccepttheengagement.
Format and wording of the accountants’ report
62. Asalreadynotedinparagraphs44to52,thetypeofengagementthatisbeingsoughtbythegrant-payingbodywilldeterminetheformandcontentoftheaccountants’report.Modelexamplesofaccountants’reportsrelatingtothethreetypesofengagementscanbefoundinappendixC.
63. Careshouldbetakenwhenthegrant-payingbodyisrequiredtousetermsand/orexpressionsintheaccountants’reportwhichareprescribedbylegislationorthegrant-payingbodyintendstospecifywordingforaccountants’reports.Undefinedwordscanleadtomisunderstandings.Itisthereforeimportantthatprescribedtermsorexpressionsareclearlydefinedattheoutset.Accountantsshouldbeabletoaddtoanywordingprescribedbylegislationandmodifywordingsetbythegrant-payingbodyespeciallyifaccountantsareexpectedtoprovideanopinion.Withouttheabilitytoaddtooramendthewordingofthereport,accountantsmaybeforcedtoqualifythereportorevenresignfromtheengagement,simplybecausetheyareunabletosignuptotheprescribedwordingwhichdoesnotreflecttheirconclusionandopiniononthegrantclaim.
64. Inpracticeitshouldbenotedthatamendmentstoanytemplatereportsarelikelytobefairlycommonandwillsetoutsignificantissuesand/oradditionalmattersthat,intheopinionoftheaccountants,needtobebroughttotheattentionofthegrant-payingbodyandthegrantrecipient.Theabilitytoamendanystandardreportwordingexpectedbythegrant-payingbodymaythereforebeofdirectbenefittothegrant-payingbodywhereitprovidesadditionalinformationthatisofvaluewhenassessingcompliancewiththegrantclaimtermsandconditionsbythegrantrecipient.
65. Accountantsarenotboundtosignanyformofreport(pre-printedorotherwise)thathasnotbeendiscussedwiththemorthattheirprofessionalbodyhasnotrecommended(noraretheyobligedtosignanyformeveniftheirprofessionalbodyhasrecommendedit).Ifthebasicformandcontentofthereportistobespecified,thenitwouldbehelpfultodiscussthiswiththeprofessionalbodiesoftheaccountantswhoarelikelytobeinvolvedinundertakingtheworkonthegrantclaim.Often,anearlydiscussionwillindicatewhetherwhatthegrant-payingbodyisconsideringissomethingthataccountantswillbeabletoprovideareporton.Itwouldalsobehelpfultodiscusstheformofreportwithanyotherusersofthereport(eg,thegrant-payingbody’sexternalauditors)beforethestartoftheengagement.Earlydiscussionwillhelpensurethatexpectationsofallpartiesareunderstoodandcanbemetandavoidproblemsthatcanariseduringthereportingprocess.
66. AppendixDincludesexamplesofwordsthatoftengiverisetoproblemsforreportingaccountants.Indraftingthespecificationofaccountants’reportsitisimportanttouselanguagethatisfreefromambiguity.Forexample,undefinedtermssuchas‘review’or‘reasonable’arenotrecommendedunlessthereisacleardefinition.
EXAMPLE5:HAVE‘PERFORMANCEANDBUDGETARYINFORMATION’BEENREPORTEDONBYTHERECIPIENTALONE?
Sometimes,aninvestmentfundedbyagrantwillgeneratesavingsforrecipients’revenuebudgets.Thiswasthecasewithagrantforwasteminimisationandrecycling,asfuturelandfilltaxwouldbelessthaniftippingcontinuedatpreviouslevels.However,thegrant-payingbodywantedassurancethatrecipientswouldmaintaintheirbudgetstosafeguardlocalauthorities’expenditureonwastemanagement.
Accountantsonlyneededtoreportontheexpenditureonthenewactivitiesaslocalauthoritytreasurerswerelefttoself-certifythatsavingswere‘re-invested’inwastemanagementandnotdivertedtootheractivities.
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Matters to consider at report stage
67. Thegrant-payingbodymaywishto:
• determineamaterialitylevelthatsupportstheleveloferrorand/orriskthatitispreparedtoaccept;
• ensurethatitwillunderstandtheimpactofanyerrors;
• considertheimplicationsofthevarioustypesofreportsreceived;
• beabletointerpretthequalificationsinaccountants’reportsoridentifyissuesandmakejudgementsandtakeappropriateactionaboutwhether:
- toaskaccountantstocarryoutfurtherwork(where,forexampletheaccountanthasindicatedmissingrecords);or
- nottopayfutureinstalmentsofgrants;or
- clawbackcurrentgrantsorinstalmentsalreadypaid;
• haveasysteminplacetoidentifylateormissingreportsandtakeappropriateaction(eitherfollowupwiththegrantrecipient,suspendpayments,imposeagreaterlevelofretentionorultimatelyclawback);and
• haveasysteminplaceforaccountantstoenterintoearlydialoguewiththegrant-payingbodywhentheyidentifysignificanterrorsordeficienciesinthegrantrecipient’srecords.
68. Rejectionofareportordelaysorrefusaltopayfuturegrantsshouldnotsolelybebecausethereportdoesnotreflectastandardformofwords.Thetermsandconditionsofboththegrantschemeandtheofferletterneedtoidentifythetriggerthatwillleadtorejectionofareportordelaysorrefusaltopayfuturegrants.Whereaccountants’reportsarefrequently‘qualified’foroneparticularreason,thenthegrant-payingbodycouldissueguidancetoclarifyhowtheparticularissueshouldbeconsideredanddealtwith(andupdateitsdefinitionsofeligibilityforanythingthatisnotclear).
EXAMPLE6:CLAWBACKOFGRANTMONIESWHERETHEACCOUNTANTDIDNOTUSETHEPRESCRIBEDFORMOFWORDS
AlocalauthoritywastheleadaccountablebodyforaEuropean-fundedActionPlan.TheActionPlansoughttoaddressthelackofprovisionofbusinessadvicetoSMEsinparticularlydeprivedwards.TheactualdeliveryoftheActionPlanwassplitintoanumberofsub-projectsdeliveredbythirdpartybusinessadviceproviders.Eachsub-projectwasrequiredtocompleteandsubmitanannualstatementofexpenditurewithanindependentreport.
Theaccountantstooneofthesub-projectsissuedareportwhosewordingwasnotanexactwordforwordmatchtotheproformaissuedbythelocalauthority.Thelocalauthorityrejectedthereportandsoughttocommenceclawbackoftheentiremoniesclaimedbythesub-project.Themeaningandcontextoftheissuedreportwasthesameastheproformareport.
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SECTIONDCONSIDERATIONSFORREPORTINGACCOUNTANTS
69. Beforetakingontheengagementaccountantswillneedtoclarify:
• thepurposeoftherequestforthereport;
• thescopeofwork;
• towhomtheywillbereporting;
• towhomtheywilloweadutyofcare;and
• whatthereportwillbeusedfor.
70. Accountantswillwanttounderstandwhetherthereportisrequiredtoconfirmtheeligibilityofexpenditureand/orwhetherthereportwillbeusedtoconfirmthatthegranthasbeenspentinaccordancewiththeparticulartermsandconditionsandforthepurposesintended.Itisimportantthatthereisaclearunderstandingofthescopeandpurposeoftheengagementamongalltheparties.
71. Accountantswillalsoneedtoconfirmthatgrantrecipientsunderstandtheirresponsibilitiesinrelationtothetermsandconditionsofthegrantandtheneedtomaintaineffectivesystemsanddocumentationtorecordthetransactionsinrelationtothegrantscheme.Accountantsmaywishtoconsiderwhethertheyneedtoobtainwrittenconfirmationfromthegrantrecipientacknowledgingtheirresponsibilities.Itwillalsobeusefulforaccountantstounderstandattheoutsetwhoispayingforthereport:thegrant-payingbodyorthegrantrecipient.
72. Itisimportantthatbeforeagreeingtotakeontheengagement,accountantsconsidertheneedtodiscusswiththegrantrecipienttheformofreportthatthegrant-payingbodyhasrequestedandwhethertheaccountantswillbeabletoprovidethis.Accountantsshouldnotsignreportsuntiltheyhavebeenabletoperformsufficientworkandobtainsufficientevidencetosupporttheirfindings,opinionsand/orconclusions.Inallcases,accountantshavetherightnottoacceptanyengagementiftheyconsiderthattherequiredwordingistooonerousorwherethewordinghasnotbeenproperlydefined.Wheretheydonotfeelabletoacceptsuchresponsibilitytheyshoulddeclinethiswork.
Engagement terms
73. Inarrivingatanunderstandingaboutwhomayhaveaninterestintheaccountants’reportandforwhatpurpose,accountantsneedtoknowwhoisinvolvedintheengagement,whomaywishtorelyonitandthepartiesthatmaysufferadirectloss.
• Grantrecipient–willrequirethereportforthepurposeofmeetingoneofthegrantrequirements.Failuretoobtainanaccountants’reportcouldresultinthegrant-payingbodyclawingbackgrantmoniesthathavealreadybeenpaidtothegrantrecipient.
• Grant-payingbody–mayrequireareporttoconfirmthatthegrantrecipient’sclaimislimitedtoeligiblecostsand/orthatthegrantmonieshavebeenspentinaccordancewithboththetermsandconditionsofthegrantschemeandtheofferletter.Thegrant-payingbodymayberelyingonthereportevenwhenthereportisnotaddressedtothegrant-payingbody.
• Otherparties–asponsoringbodyoramatchfunderwhichhasindicatedthatitwillalsoseektorelydirectlyontheaccountants’report,particularlywhenitistryingtosatisfyitselfoftheregularityandproprietyofgrantsdistributedbythegrant-payingbodyforwhichitisultimatelyaccountable.
Anypartythatwillrelyonthereportandwhowillsufferadirectlossshouldconsiderbecomingapartytotheengagement(seeparagraphs41to43).
74. Theremayalsobeotherbodiesthatareentitledtoviewthereportsandaccountantswillneedtounderstandwhichbodiesmaychoosetousetheirreports,forwhatpurposeandwhethertheywillrelyonthereportbutwillnotsufferadirectloss.Forexample:
• sponsoringbodies–thatarereviewingthesystemsandprocessesinplaceatthegrant-payingbodyinrelationtotheadministrationofthegrantschemeratherthanreviewingtheaccountants’reportitselfmaychoosetoreviewasampleofaccountants’reportsaspartoftheirownreviewofthegrant-payingbody;
• auditagencies–connectedwithanyoftheaboveparties(includingtheEuropeanCourtofAuditors);
• parliament;and
• devolvedadministrationsandlegislatures.
Theremaybeotherbodiesorindividualsthatwishtohaveaccesstotheaccountants’reportormayhaveastatutoryrightofaccess.Theextenttowhichtheymayplacerelianceonthereportisnotalwaysclear.
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75. Whentakingonthiswork,accountantsmayhavearesponsibilitytothosethatreceivethereport,relyonitandwhosufferadirectlossasaresultofthatreliance.Insuchcases,andwhereallthepartiesareknown,theexpectationsand/orscopeofworkshouldnormallybedeterminedwiththepartiesintheengagement.Insomecases,thismaybedifficulttodoasthegrant-payingbodymayalreadyhaveprescribedthescopeofworkanditsexpectationsaspartofitstermsandconditions.Itwould,however,notbereasonabletoexpectaccountantstoacceptaresponsibilitytothirdpartieswhoseinterestintheworkmaynothavebeenknownatthetimethattheworkwasacceptedandperformed.
76. Accountantswillneedtoconsiderandapplyappropriateengagementacceptanceproceduresinordertoassesstherisksassociatedwithtakingonanyengagementofthisnature.Theywillthendeterminewhether,inthelightoftheirassessmentandtherisk,itisappropriatetotakeontheengagementandifso,onwhatterms.
Agreeing on engagement terms
77. Iftheaccountantsarenotthegrantrecipient’sstatutoryauditors,thentheymaywishtoincludelanguagewithintheirengagementletterwhichclarifiestheirresponsibilitiesandliabilitytothestatutoryauditorofthefinancialstatements.Thetwoengagementsareseparate,withthestatutoryauditorsbeingresponsiblefortheirownauditreport.Thestatutoryauditorshavetodeterminewhatreliance,ifany,toplaceontheaccountants’workaspartoftheevidencefortheiraudit.Forthesamereasons,theaccountantsshouldincludesimilarclarifyinglanguagewithintheirengagementletterstotheauditorsofthegrant-payingbody.
78. Iftheaccountantsarethestatutoryauditorsofthegrantrecipient,thentheywillneedtocarefullymanagetheirrelationshipfortheseengagementswiththegrantrecipientandanythirdparties.Boththegrantrecipientandthegrant-payingbodywillneedclarificationthattheseengagementsareseparatefromthestatutoryauditengagements.Toprovidethisclarity,accountantsmay,withintheengagementterms,confirmthattheirresponsibilitiesinrelationtothestatutoryauditengagementareseparateandcarriedoutforadifferentpurposefromtheengagementtoprovideareportonthegrantfunding.
79. Dependingonthecircumstances,accountantsmaywishtoconsidertheapproachoutlinedinAAF04/6,Assurance Engagements: Management of Risk and Liability.Forthepurposeofthiswork,themostappropriatearrangementsforaccountantstoenterintowillbe:
(a) atripartiteormultipartiteengagementcontractwiththegrantrecipientandthegrant-payingbody,acceptingthattheyoweadutyofcarenotonlytothegrantrecipient(whoistheirclient)butalsotothosegrant-payingbodies,includingprovisionslimitingliabilityifappropriate(recognisingthatsuchacontractmaynotbeachievablewheretherearenumerousthirdparties).
(b) anengagementwiththegrantrecipient,withthefacilityavailableforotherthirdpartiestoenjoyadutyofcarefromtheaccountantsiftheyaccepttherelevanttermsoftheengagementwhichhavebeenpreviouslyagreedwiththegrantrecipientasiftheyhadsignedthatletterwhenitwasissuedincludingthesameprovisionslimitingliability6.
(c) iftherisksareconsideredtobehigheg,becausetheengagementitselfisconsideredtobeverycomplexortheaccountantisunabletoagreeacceptabletermswiththegrantrecipient(and/orgrant-payingbody),thentheaccountantscouldconsiderdecliningtheengagement.
80. Wherepossible,thetermsofengagementneedtobeagreedbyallthepartiestotheengagementwiththeagreedtermsrecordedinwritingintheengagementletter.AppendixEprovidesanexampleofmodelterms.Inreality,wheregrant-payingbodiesareadministeringalargescheme,itmaynotbepossibleorfeasibleforthegrant-payingbodytoenterintoindividualtripartiteormultipartiteengagementsforeachandeverygrantallocatedtoagrantrecipient.However,itmaybepossibleforthegrant-payingbodytopublishstandardisedengagementtermsaspartofitstermsandconditions,outliningthebasisonwhichtheyarewillingtobecomeapartytoanengagement(seeexample7below).
81. AppendixFprovidesanexampleofasetofstandardisedmodeltermswherethegrant-payingbodyisofferingtocontract,attheoutset,throughitstermsandconditions.Accountantsshould,however,notethattheabsenceofatripartite,multipartiteengagementletterorastandardisedsetoftermsdoesnotinitselfmeanthatadutyofcareisnotowedtothegrant-payingbody.Ifthepurposeforwhichthegrant-payingbodyhasrequestedthereportisclearwithinthegranttermsandconditionsandithasclarifiedthatitseekstorelyonthereportasaconditionofthegrant,andiftheaccountantstakeontheengagementwiththisknowledge,thentheremaybeanimplieddutyofcare.
6 Thiswillrequiretheconsentofthegrantrecipientwhichshouldbeobtainedintheengagementletter.
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EXAMPLE7:STANDARDISEDENGAGEMENTTERMS
Somegrant-payingbodiesalreadyprovidestandardisedengagementtermsforgrantagreements.OneexampleistheDepartmentforBusinessInnovationandSkills(BIS)withitsGrantforBusinessInvestment(GBI)scheme.
Whereagrant-payingbodyprovidesstandardisedengagementterms,itdoesnotneedtosignanengagementletterasitofferstocontractwiththeaccountantonthemodelengagementterms.Oncetheofferisacceptedbythegrantrecipientandtheaccountantsuponsignatureandsubmissionofareporttothegrant-payingbody,thenecessarycontractisformedbetweenthegrant-payingbody,thegrantrecipientandtheaccountants.Aseparateengagementlettermayalsobeagreedbetweenthegrantrecipientandtheaccountantsbutitshouldbenotedthatthetermssetoutintheseparateengagementletterdonotbindthegrant-payingbody,otherthanthosetermssetoutinthestandardtermsissuedbythegrant-payingbody.
Liability
82. AccountantsintheUKareadvisedtoaddresstheirreportstogrant-payingbodieswhenthebasisandextentoftheirliabilitytothegrant-payingbodyisclearandagreedwithinanengagementletter.IndecidingandagreeingappropriateengagementtermsinEnglandandWales,accountantsshouldrefertotheguidanceintheICAEW’sMembers’ Handbook Statement 9.1: Managing the professional liability of accountantsandconsidertheconsequencesoftheContracts(RightsofThirdParties)Act1999.
83. Possiblewaysofarrivingataliabilitylimitandthroughseparatenegotiationare:
• tolimittheliabilitytotheamountofthegrant;and/or
• capitatafixedmonetaryamount.
84. Inmostcases,thegrant-payingbodywillseektorecoverlossesfromthegrantrecipientdirectlybutmayseektorecoverlossesfromaccountantswhereitbelievesthattheaccountantshavebeennegligentincarryingouttheirwork,orinprovidingthereport.
85. Oneoptionistolimitliabilitytothatproportionofthelossordamagesufferedbythegrant-payingbodyforwhichaccountantshavecontributedtotheoverallcauseagreedbetweenthepartiesor,intheabsenceofagreement,itwillneedtobedeterminedbythecourts(subjecttoanupperlimit).
86. Ifclarificationlanguageisusedinthereport,accountantswillneedtoconsiderwhetheritisreasonableandthereforelikelytobeeffectivetakingaccountoftherequirementsoftheUnfairContractTermsAct1977.Bearinmindthatsuchwordingisnotalwayseffective.Accountantsareadvisedtoseektheirownindependentlegaladviceontheeffectivenessofanyclarificationlanguagethattheyintendtoincludewithintheirreports.ExamplewordingforlimitingliabilityandclarificationlanguageareprovidedinAppendicesGandH.
Scope of Work
87. Accountantsneedtobeclearaboutwhatthegrant-payingbodyrequiresareporton.Thegrant-payingbodymaywantaparticularoutcomeandmayalsowanttheworktobecarriedoutinaspecificway.Accountantswillneedtoconsiderwhethertheycancarryouttheworkrequestedand,iftheyareableto,considerwhattheyneedtodotoprovidetheformofreportrequested.Iftherequirementsarenotclearlyexpressedinthetermsandconditionsofthegrantschemeandtheofferletter,accountantswillwanttoclarifywhatisrequestedofthemfromtheoutset,includingthetypeofengagementrequested(‘reasonableassurance’,‘limitedassurance’or‘agreed-uponprocedures’).
88. Dependingonthetypeofengagementthatisrequired,accountantswilldeterminetheproceduresthattheywillneedtocarryout(includingthematerialitylevelsandanysamplingmethods).Accountantswillneedtodeterminewhetherwhattheyhavebeenrequestedtoreportonisactuallycapableofbeingreportedon.
89. Theleveloftestingcarriedoutdependsonthetypeofengagementrequiredandshould,wherepossible,beagreedwiththegrantrecipientandthegrant-payingbodyattheoutsetoftheengagement.Thehighertheassurancerequired,themoredetailedthetestingislikelytobe.Themoretestingthatiscarriedout,themorelikelihoodthereisofanyerrorsbeingdetected.Itisworthnotingthat,howeverdetailedthetesting,notallerrors(whetherdeliberateorotherwise)maybedetected.
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Format of report
90. Thetermsandconditionsofthegrantschemeandtheofferlettershouldmakeclearthetypeofreportrequiredwhichwillhelptodeterminethetypeofengagement,thescopeofworkandformofreport.
91. Agreeingthewordsandformofreportattheoutsethelpstoavoiddisagreementswiththegrantrecipientorthegrant-payingbodyatalaterstage.Theaccountants’reportshouldreflecttheagreementsetoutintheengagementletterandbesupportedbytheworkcarriedout.Thereportshouldmakeclear:
• forwhomitisprepared,whoisentitledtorelyonitandforwhatpurpose;
• thattheengagementwasundertakeninaccordancewiththeagreedengagementterms;
• theworkperformedandthefindings;and
• aconclusionorreportwhichcanbesupportedbytheworkdone.
92. Accountantsshouldtakecaretouseclearandpreciselanguagetodescribespecifictermsused(suchas’enquiry’or’inspection’).
93. Accountantsandgrant-payingbodiesneedtonotethatanyformofreportthathasbeenendorsedasacceptablebytheaccountants’professionalbodydoesnotnecessarilybindaccountantsbuttheymaywishcarefullytoconsiderthereasonsbehindtheagreementwiththeprofessionalbodybeforedecidingnottoagreetotherequestedformofwords.Accountantswillalsoneedtobearinmindthatsomewordingincludedwithinprescribedformsofreportsmightbewordingthatisenshrinedinlegislation.Ifthisisthecase,thegrant-payingbodywillnormallyhavedefinedthewordsclearlytoavoidanymisunderstandingslater.
94. AppendixCprovidesexampleproformareportswheneithera‘reasonableassurance’,‘limitedassurance’or‘agreed-uponprocedures’engagementisagreed.
Confidentiality issues
95. Incarryingoutthiswork,accountantsneedtobeclearaboutandunderstandtheirresponsibilitiesaroundclientconfidentiality.
96. Accountantsneedtounderstandthattheremaybestatutoryrightsofaccessforparties(suchasgovernmentdepartmentsorauditagencies)thatneedtoseetheirreports(andpossiblyworkingpapers)forstatutorypurposes.Thismaybeeithertoclarifyorconfirmtheprocessesthathavebeenputintoplacebythegrant-payingbodytoallocateandverifytheuseofgrantmoniesorbecausetheyhaveastatutorydutytoreporttoParliamentmattersofsignificancewhichmayariseoutoftheirreviews.
97. Theaccountants’workingpapersaretheirlegalpropertyand,exceptwherethereisastatutoryrightofaccess,accountantshavearighttorestrictordeclineaccesstothem.Theworkingpapersmaycontainconfidentialinformationaboutthegrantrecipientand,bypermittingaccesstothem,accountantscouldbeacquiringasignificantlegalrisk.However,refusingaccesscouldbeunhelpfultothegrantrecipientandthoserequiringtheaccess.Therearesomestepsthattheaccountantmightwishtoconsidertaking.Beforepermittingsuchaccess,accountantsneedtoconfirm,firstwhetherthereisastatutoryrightofaccess(complyingwiththesewillnotbreachprofessionalconfidentiality).Ifthereisnostatutoryrightofaccess,theaccountantsneedtoestablishthereasonsfortheaccessandagreeaprotocolwiththebodythatismakingtherequestonhowtheaccessmaybeobtainedsothattheinterestsofallpartiescanbeprotected.
98. Accesstotheaccountants’workingpapersmaybepermitted–whilemanagingliabilityrisks–byusingclientauthorisationandreleaseletters.Byusingclientauthorisationthegrantrecipientgivestheaccountantswrittenauthorisationtoprovideaccess,informationandexplanationsandagreesthattheaccountantswillnothaveanyliabilitytotherecipientasaresult.Releaselettersentailthebodyrequestingaccesstoagree,amongotherthings,thattheaccountantsdonotassumeanydutyorliabilitiestothebodyasaresultofgivingsuchaccess.
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Data protection
99. Dataprotectionlawsapplytothepersonaldataofindividuals.Relevantinformationmaycontainpersonaldata(forexampleaboutemployeesoraboutsoletraderswithwhomtheclientdoesbusiness).However,theaccountantmaybeobligedtoprovideaccesstorelevantinformationbylegislation.Therefore,wherepersonaldataisdisclosed,aslongastheinformationbeingprovidedisnecessarytodischargethatlegalobligation,therearenodataprotectionrisksforaccountants.
Fraud and illegal acts
100.Inthecourseofperformingprocedures,accountantsmaybecomeawareofuncorrectederrors,fraudorillegalactsattributabletothegrantrecipient’ssystem,managementoremployeeswhichmayaffectthegrantclaimed.
101.Unlessclearlyinconsequential,accountantsdeterminefromthedirectorsofthegrantrecipientwhetherthisinformationhasbeencommunicatedtothegrant-payingbody.Ifthedirectorshavenotcommunicatedthisinformationandareunwillingtodoso,theaccountantsinformtheauditcommittee,wherethereisone,oragroupofdirectorswithequivalentauthority.Iftheauditcommitteeorequivalentdoesnotrespondappropriately,theaccountantsneedtoconsiderwhethertoresignfromtheengagement.Accountantsgenerallyarenotrequiredtoconfirmwiththegrant-payingbodythatthegrantrecipienthascommunicatedsuchinformation.Accountantsmay,however,wishtoconsiderwhethertheyhaveotherreportingrequirementssuchasoneinrelationtoreportingmisconductbyanothercharteredaccountantorrequirementsunderotherrelevantlegislation.
Freedom of information
102.TheFreedomofInformationAct2000aimstoincreasethetransparencyandaccountabilityofpublicbodiesandthewayinwhichsuchbodiescarryouttheirwork.PublicauthoritiesarelistedintheAct.BroadlyspeakingapublicauthorityisdefinedbytheActasaUK-widepublicauthorityorapublicsectorbodyinEngland,WalesorNorthernIreland(similarlegislationexistsinScotland).Thepublichasastatutoryrighttoaccesstherecordedinformationheldbyapublicauthorityfrom1January2005.
103.Inrelationtoanaccountants’report,therefore,unlessavalidexemptionapplies,thepublicwillhavearighttoseeanaccountants’reportinrelationtoagrantschemethatfallsunderinformationheldbyapublicauthority.ObtaininginformationundertheFreedomofInformationAct2000doesnotcreateadutyofcarebetweentheaccountantsandtherequestor.
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SECTIONECONSIDERATIONSFORGRANTRECIPIENTS
Application process
104.Whengrantrecipientsmakeanapplicationforagranttheywillneedtounderstandthetermsandconditionsofthegrantscheme.Grantrecipientsareresponsibleforprovidingevidencetothegrant-payingbodythattheymeettheeligibilitycriteriaforreceiptofgrantfunding.Thiswillbeattheapplicationstage.Thegrant-payingbodywillnormallyspecifywhatdocumentationitrequirestoconfirmeligibilityanditwillbethegrantrecipient’sresponsibilitytoprovidethecorrectdocumentationdirectlytothegrant-payingbodywiththeapplication.
Grant offer and acceptance
105.Onceagrant-payingbodyhasprocessedanapplication,checkedandconfirmedthattheeligibilitycriteriaforagranthavebeenmetandtheapplicationforagranthasbeenapproved,itwillsendagrantofferlettertothegrantrecipient.Thegrantofferletterwillcontain,orreferto,thedetailedtermsandconditionsthatthegrantrecipientmustcomplywithinordertoreceivethegrant.
106.Acceptanceofgrantfundingcomeswithanobligationtocomplywithallofthegrant’sconditions.Itisthereforeimportantthatgrantrecipientshaveafullunderstandingofthetermsandconditionsincludingtheirresponsibilities,obligationsandthereportingrequirements.Ifgrantrecipientsareunclearabouttheirresponsibilitiesandobligations,theywillneedtoclarifythesewiththegrant-payingbodyandpreferablyattheacceptancestage.
Responsibilities and obligations
Systems and documentation107.Grant-payingbodieswillprovidedetailedguidelinestograntrecipientssothatgrantrecipientscan
monitorcompliancewiththegrantconditions.Ifanyaspectoftherequirementssetbygrant-payingbodiesisnotclear,grantrecipientswillneedtoobtainclarificationfromthegrant-payingbodyandensurethattheyfullyunderstandtheirobligations.
108.Thegrant-payingbodywillsetoutthedocumentationthatitwillrequireasevidence.Itwillbethegrantrecipient’sresponsibilitytosetupandmaintainsufficientandeffectiveadministrativeandfinancialsystemswhichsupportandrecordthetransactions(bothincomeandexpenditure)inrelationtothegrantschemeandwhichwillprovidetherelevantsupportingdocumentationtoevidencethetransactions.
109.Grantrecipientswillalsoneedtomaintaineffectiveinternalcontrolandoperatingsystemswhichmonitorthedeliveryofthescheme’sobjectives(including,whereappropriate,deliverybypartnerorganisations).
Interim claims110.Grantmoniesmaybepaidatthestartofaschemeandatregularintervalsduringthecourseofthe
financialyearorgrantperiod.Aspartofthetermsandconditionsofthescheme,thegrant-payingbodymayrequirethegrantrecipientsperiodicallytosubmitevidencethattheyarespendingthegrantmoniesinaccordancewiththetermsandconditionsofthegrantschemeandinaccordancewiththepurposesintended.
111.Ifevidenceisrequiredperiodically,thegrant-payingbodywillnormallyrequirethisthroughthesubmissionofaninterimclaimorreturn.Thetermsandconditionsoftheschemewillprovidedetailsofhowinterimclaimsorreturnscanbesubmitted.Evidenceofexpenditureisusuallyprovidedthroughprogressreportingatregularintervalsduringtheperiodofthegrant,identifyingcrucialinformationsuchasunderspendsagainstprofiles.Itisthegrantrecipients’responsibilitytoensurethatinterimclaimsandprogressreportsproviderelevantandaccurateinformation,reflecttherelevantperiodandaresubmittedbytheprescribeddeadlines.
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Final returns112.Attheendofeachfinancialyearofthegrantschemeandalsoatthecompletionstage(ifthegrant
schemeextendsoveranumberofyears),grantrecipientswillberesponsibleforprovidingevidenceandanindependentaccountants’reportthattheyhavespentthegrantmoniesinaccordancewiththetermsandconditionsofthegrantschemeandforthepurposesintended.
113.Thetermsandconditionswillprovidedetailsofhowperiodicandfinalclaimsandreturnsshouldbesubmitted.Itwillbeforthegrantrecipienttoensurethattherequirementsforobtainingandsubmittinganaccountants’reportonagrantclaimorreturncanbemetbeforeacceptingagrant.Theyshouldthereforeobtainconfirmationthattheiraccountantswillbeabletoprovidetherequiredreportwithinthetimerequired.Thisconfirmationshouldbeobtainedatthegrantacceptancestage,ratherthanriskencounteringproblemslaterwhenfailuretoprovidethereportcanresultinclaw-backofgrantmonies.
114.Whereappropriate,thegrant-payingbodywill,inthetermsandconditions,providedetailsofthereportingstructurethatitrequirestobeinplace,including:
• theformofreportrequired;
• thecontracttermsunderwhichthereportisrequired;
• whowouldbebestplacedtoprovidethisreport;
• howthegrantrecipientshouldsecuretheengagement(ie,doesitengagedirectlywiththeaccountantsorwillthegrant-payingbodybeapartoftheengagement?);
• thequalificationsthattheaccountantswillbeexpectedtohave;
• theinformationthatthegrantrecipientwillberequiredtomaintainandsubmittotheaccountantsinsupportoftheyearendorfinalclaimorreturn;
• where,whenandtowhomthereportisrequiredtobesubmitted;and
• theprocessthatthegrantrecipientwillneedtogothroughifaccountantsareunabletoprovidetheconfirmationthatthegrant-payingbodyrequires.
Duty of care
115.Grant-payingbodieswilldeterminewhethertheywantaformaldutyofcarefromaccountantsandthiswilldeterminethetypeofengagementthattheywillbewillingtoenterintowithaccountants(paragraphs41to43insectionC).Theaccountants’reportwillbeaddressedtothegrantrecipient.Ifthegrant-payingbodyagreestoenterintoatripartiteormultipartiteengagementorprovidesstandardisedengagementterms,theaccountants’reportwillalsobeaddressedtothegrant-payingbody.Thetermsandconditionsshouldexplicitlystateallthepartiesthatareinvolvedintheprocessandthus,towhomthereportshouldbeaddressed.
Types of engagement
116.Itwillultimatelybeforthegrant-payingbodytodeterminethetypeofengagementitrequires.Thetypeofengagementwillthendeterminethescope,natureandextentofworkthataccountantswillcarryoutandtheformatandwordingoftheaccountants’reportwillfollowaccordingly.Theoptionsandrelevantfactorsaffectingthetypeofengagementthatthegrant-payingbodymaydecideuponarelaidoutinparagraphs44to52insectionC.Thetermsoftheengagementwillpartlybedeterminedbythetypeofengagementchosen.Moreinformationonthisisprovidedinparagraphs73to81insectionD.
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LISTOFTERMSANDCONDITIONSTHATCOULDBEUSEFULLYINCLUDEDINAGRANTSCHEMETOPROVIDECLARITY
1. Glossaryanddefinitionsofterminologyusedeg,expendituredefrayed.
2. Thestagesoftheapplicationprocess.
3. Whatisandisn'teligibleeg,cost,location,whocanapply?
4. Therateofsupport.
5. Maximumapprovedexpenditureandmaximumamountofgrantonoffer.
6. Whetherthegrantisforcapital/revenueorbothandifthegrantisnetofanyincome.
7. Virementbetweencapitalandrevenueorbetweenvarioustypesofcapitalandrevenue.
8. Anyrestrictionsonsourcingequipmentorsupplies.
9. Thesystems,proceduresandsupportingdocumentaryevidence(suchastimerecords)thatthegrantrecipientwillberequiredtomaintain,coveringthelengthoftheperiod,forhowlongandforwhom.
10. Clarityaboutwhattheyrequireareportonandthatwhattheywantareportoncanactuallybereportedon.
11. Theaccountingpolicies(includingwhetherthegrantreturniscompletedonanaccrualsorpayments‘defrayed’basis;andapportionmentmethodsforoverheads).
12. Processtobefollowedwhenthereareinstancesofdoublecounting/doublefunding,matchedfunding,additionality,contributionsinkind,expendituredefrayed.
13. Processtobefollowedwhenerrorsoccur,howtheseneedtobemanaged(eg,themethodofallocatingoverheadstothefundedactivity;therecordingoftimespentontheproject;thetreatmentofrevenueattributabletothefundedactivity)andinterventionoptions(eg,suspensionofpayments;re-profilingoffutureexpenditure;holdingretention;clawback/terminationofgrant).
14. Processtobefollowedwheneligibleexpenditureexceedsthefundinglimitandwhathappensifpartoftheexpenditureisdisallowed.
15. Cutoffpoints(suchasdeadlinedatesforeligibility,timingofinterimandannualreports,independentaccountants’reports)asthereneedtobeworkableperiods/deadlinesforrecipientstocompileclaimsandthenfortheaccountantstodotheworknecessaryforthereport.
16. Timelinessofandcompliancewiththegrant-payingbodiesreportingrequests.
17. Ifthegrantisallocatedtoapartnership,thenclarityaroundtheresponsibilitiesofeachpartnerinrelationtotheschemeasawhole.
18. Accessibilityandavailabilityofthetermsandconditions(possiblyonawebsite).
19. Formatofthereturnthatthegrantrecipientwillberequiredtosubmit(ensuringthatitaddsup).
20. Formatoftheaccountants’report(bearinginmindtheissueshighlightedinparagraphs47to66ofthisframeworkdocument).
21. Acontactnameforqueriesinrelationtotheengagementtermsandreporting(intheofferletter).
22. ForUKgrants,areferencetotheappropriateUKlegislationorregulationsthatthegrantschemeisgovernedby.
23. ForEuropeangrants,areferencetotheappropriateEuropeanDirectiveorconditionsofaid.
Thekeyissuehereisthatagrant-payingbodyneedstoconsiderandidentifywhichtermsandconditionsarerelevantforaparticulargrantscheme,whatitisthattheywantareporton,andwhowillprovidethereport.Thisis,bynomeans,anexhaustivelist.Theremaybeotheritemsthatarenotincludedherewhichmayalsoberelevanttohaveinasetoftermsandconditions.Itisoftenhelpfultoconsultstatutoryauditagenciesonthedocumentaryevidencethatthegrantrecipientmayberequiredtokeeptojustifytheexpenditure.
APPENDIXA
APPENDIXBTYPESOFENGAGEMENT–OPTIONSANALYSIS
TypeofEngagement Description NatureofReport Pros Cons
Agreed-uponProcedures Theexactscopeofwork(eg,typeoftest,samplesizesetc)isagreedbythegrant-payingbody,grantrecipientandtheaccountant.
or
thereportingaccountantfollowstheexactscopeofworksetoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody.
Theaccountantthenundertakestheseproceduresandreports the results.
Adetailed reportsettingouttheworkundertaken(ormakingreferencetothescopeofworksetoutinthetripartiteengagementletterormakingreferencetothesourceofanypre-agreedprocedures)andtheresultsofthetesting.
Thisisafactual reportandno conclusion is given.
• Clarityaboutthescope,natureandextentofthetestingagreedattheoutset.
• Grant-payingbodycansetouttheoveralltemplateforthereportinthelightofitsrequirements.
• Anyexceptionsthatareidentifiedaresetoutinthereport.
• Thegrant-payingbodyandotherpotentialusersofthereport(eg,thegrant-payingbody’sexternalauditors)areabletoreachaninformedjudgementbasedontheinformationprovidedinthereport.
• Simpleengagementfromtheaccountant’sperspectiveandtherefore,allotherthingsbeingequal,cheaperthanotheroptions.
• ProfessionalguidanceinplaceintheformofInternationalStandardonRelatedServices(ISRS)4400,Engagement to perform agreed-upon procedures regarding financial information.
• Timeneedstobesetasidetoagreethescope,natureandextentofworkupfront.
• Theaccountantwillonlycompletetherequiredworkandwillnotundertakeadditionalprocedureseveniftheyidentifyerrors(unlessthisisrequiredbythescopeofwork).
• Noconclusionisgiven.Thereforethegrant-payingbodyislefttointerprettheresultsandmakeajudgement.
• Thegrant-payingbodymaynothavethetime/skills/resourcestointerpretthereport/reachajudgement.
Agreed-uponproceduresmaybethemostappropriatetypeofengagementifthegrant-payingbodywantstosettheprocedurestomaintainconsistencyinthewaythataccountantscarryoutthework:
• obtaintheresultsovercompliancewiththetermsandconditionsatthelowestcost(althoughthiscanbeexpensiveiftheproceduresarelongandinvolved);• ensureconsistencyinthescope,natureandextentofworkundertakenbyreportingaccountants;and/or• receiveareportsettingoutdetailsoftheworkundertaken,thefindingsandalloftheexceptionsnoted.
Agreed-uponproceduresisunlikelytobethemostappropriatetypeofengagementwhenthegrant-payingbody:• wantsanassurance‘opinion’fromareportingaccountant;and/or• wantsaccountantstoapplytheirjudgementindeterminingthescope,natureandextentoftheworkrequiredtoprovideanassuranceopiniononthegrantclaim.
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APPENDIXBTYPESOFENGAGEMENT–OPTIONSANALYSISCONTD
TypeofEngagement Description NatureofReport Pros Cons
LimitedAssurance Thescopeofworkisagreedbythegrant-payingbody,grantrecipientandtheaccountant
or
theaccountantfollowsthescopeofworksetoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody.
Theaccountantthenundertakestheseproceduresandprovides a ‘limited assurance’ conclusiononthegrantclaim.
A‘limitedassurance’conclusiononthegrantclaimintheformofa negative assurance statement(eg,‘havingcarriedouttheproceduresstated(eitherassetoutintheengagementletterorinaccordancewithanagreedframework),nothing has come to our attentiontosuggestthatthegranthasnotbeenspentfortheintendedpurpose’.
• Wheretheexactscopeofworkhasbeenagreed,everyoneisclearastothescope,natureandextentofthetestingthatisundertakenasthisisagreedattheoutset.However,thisdoesnotprecludeormitigatetheneedfortheaccountantsfromperformingotherproceduresinordertogathersufficientevidencetoreachtheirconclusion.
• Theaccountantprovidesaconclusiononthegrantclaimintheformofanegativeassurancestatement.Thereisnoneedto‘interpret’theresults,unlessthereisaqualifiedconclusion.
• ProfessionalguidanceinplaceintheformofInternationalStandardonAssuranceEngagements(ISAE)3000,Assurance engagements other than audits or reviews of historical financial information.
• Maybecheaperthana‘reasonableassurance’engagement.
• Noacceptedframeworkcurrentlyinplacecoveringthesetypesofengagements.‘Limitedassurance’engagementscanthereforetakevariousforms.Thesecanrangefrombeingsimilartoagreed-uponprocedureswork,throughtoengagementsthatareverysimilartoreasonableassurance.
• Asaresult,such‘limitedassurance’engagementscanbedifficulttoagreeinpracticeandagreed-uponproceduresora‘reasonableassurance’engagementmaybemoreappropriate.
• Requires‘materiality’tobesetoragreedbythegrant-payingbody,sothatreportingaccountantscandeterminethescope,natureandextentofthetestingwiththeexpectationsofthegrant-payingbodyinmind.
• Thegrant-payingbodysimplyreceivesaconclusion,ratherthanadetailedreport,unlessadditionalreportingisspecified(eg,detailsofallexceptionsidentified).
• Readersofthereportmaynotknowtheexactscope,natureorextentoftheworkundertakenbytheaccountant,unlesstheengagementletterisprovidedoradditionalreportingisspecified.
• Maybemoreexpensivethananagreed-uponproceduresengagement.
Thedifferingnatureof‘limitedassurance’engagementsmeansthatitisdifficulttocommentonthemingeneralterms.Inmostcases,itislikelythatagreed-uponproceduresora‘reasonableassurance’engagementwillprovidethemostappropriatetypeofassurance.Grant-payingbodiesarethereforerecommendedtoconsidertheseoptionsbeforedecidingifa‘limitedassurance’engagementisappropriate.
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APPENDIXBTYPESOFENGAGEMENT–OPTIONSANALYSISCONTD
TypeofEngagement Description NatureofReport Pros Cons
ReasonableAssurance Theoverallscopeofwork(oraminimumscopeofwork)isagreedbythegrant-payingbody,grantrecipientandtheaccountant(including materiality levels)
or
Theaccountantfollowstheoverallscopeofwork(oraminimumscopeofwork)setoutinthegrantclaimtermsandconditions,orotherrelevantguidance,thathavepreviouslybeenagreedbytheaccountantorrepresentativebody,
but
the accountant determines the exact scope, nature and extent of the procedures required to support their opinion.Theaccountantthenundertakestheseproceduresandprovidesapositive conclusiononthegrantclaim.
Aconclusiononthegrantclaimintheformofapositive assurance conclusioneg,‘inmyopinion,thegrantclaimhasbeenpreparedinaccordancewiththegrantinstructionsandtheamountsrecordedhavebeenspentfortheintendedpurpose’.
Whileatemplatewordingcanbesuggested,itshouldbefortheaccountanttodeterminetheexactwordingoftheirconclusionwhichreflectstheirjudgementandislinkedtotheworkactuallycarriedout.
• Thegrant-payingbodyisprovidedwithapositiveconclusion(orotherwise)oncompliancewiththegrant’skeyfinancialtermsandconditions.
• Theaccountantisa‘financialexpert’,andhasdeterminedtheappropriatescope,natureandextentoftestingnecessarytoreachtheirconclusiononthegrantclaim.
• ProfessionalguidanceinplaceintheformofInternationalStandardonAssuranceEngagements(ISAE)3000,Assurance engagements other than audits or reviews of historical financial information.
Noneedto‘interpret’theresults,unlessthereisaqualifiedopinion.
• Aseachaccountantisresponsiblefordeterminingtheexactscope,natureandextentoftestingrequiredtosupporttheirconclusionthereislikelytobeinconsistencybetweentheamountofworkundertakenbydifferentaccountants.
• Requires‘materiality’tobesetoragreedbythegrant-payingbody,sothataccountantscandeterminethescope,natureandextentofthetestingwiththeexpectationsofthegrant-payingbodyinmind.
• Thegrant-payingbodysimplyreceivesaconclusion,ratherthanadetailedreport,unlessadditionalreportingisspecified(eg,detailsofallexceptionsidentified).
• Readersofthereportmaynotknowtheexactscope,natureorextentoftheworkundertakenbythereportingaccountant,unlesstheengagementletterisattachedoradditionalreportingisspecified.
• Toreachapositiveconclusiontypicallyrequiresadditionalprocedurestobeundertakenbytheaccountant.Thistypeofengagementcanthereforebemoreexpensive.
A‘reasonableassurance’engagementmaybethemostappropriatetypeofengagementwhenthegrant-payingbodywantsto:• obtainaconclusionfromanaccountant;and/or• allowtheaccountantstoapplytheirjudgementindeterminingthescope,natureandextentoftheworkrequiredtoprovideaconclusiononthegrantclaim.
A‘reasonableassurance’engagementisunlikelytobethemostappropriatetypeofengagementwhenthegrant-payingbodywantsto:• ensurethatthescope,natureandextentoftestingisthesameonallgrantclaims(althoughitispossibletospecifyminimumrequirements);• understandexactlywhatamountoftestinghasbeenundertakenbytheaccountant(althoughitispossibletorequestadditionaldisclosuresinrespectofthis);• beprovidedwithdetailsofallexceptions(althoughitispossibletorequestadditionaldisclosuresinrespectofthis);• avoidbeinginvolvedinsettingamaterialitylevelforthegrantclaim;and/or• minimisethecostsassociatedwithobtainingtherequiredassuranceoverthegrantclaim.
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(i)PROFORMAREPORT–AGREED-UPONPROCEDURES
Report of factual findings in connection with [project]
OFFER LETTER/CONTRACT DATED [DATE][Reference]
To:Directors[andGrantProvider]7
Thisreportisproducedinaccordancewiththetermsofourengagementletterdated[XX]forthepurposeofreportingtothedirectorsof[client](the‘company’)and[grantprovider](the‘grantprovider’)8inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].
[InsertappropriateclarifyinglanguagefromAppendixG]
[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedintheofferletter,andtoproviderelevantfinancialinformationtotheprovider.]
Our approachForthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththegrantofferletter,whichisattachedasAppendix[X]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.OurengagementwasundertakeninaccordancewiththeInternationalStandardonRelatedServices4400applicabletoagreed-uponproceduresengagements.Wewereaskedtoperformthe[Y]proceduresasdetailedinAppendix[X]andourengagementletter.
Weconfirmthatwecarriedout[X]outofthe[Y]procedures.Theresultsoftheseproceduresareasfollows:
Wewereunabletocarryoutthefollowingprocedures:[andstatereason]
or
Weconfirmthatwecarriedoutthefollowingprocedures(except[X]because...)
[Listoutthefindings,withdetailedexceptions(includingtheproceduresthatcouldnotbeperformed,whereapplicable)]
APPENDIXC
7 Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.8 Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.
29Frameworkdocumentforaccountants’reportsongrantclaims
Inherent limitationsOurprocedures,[asstatedinourengagementletter]donotconstituteanexaminationmadeinaccordancewithgenerallyacceptedauditingstandards,theobjectiveofwhichwouldbetheexpressionofassuranceonthecontentsoftheschedule.Accordingly,wedonotexpresssuchassurance.Hadweperformedadditionalproceduresorhadweperformedanauditorreviewofthescheduleinaccordancewithgenerallyacceptedauditingorreviewstandards,othermattersmighthavecometoourattentionthatwouldhavebeenreportedtoyou.Thisreportrelatesonlytothescheduleanddoesnotextendtoanyfinancialstatementsofthecompany,takenasawhole.
[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.9
Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grantprovider]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.]
Yoursfaithfully,
FirmofAccountantsOfficeDate
9 Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.
30 Frameworkdocumentforaccountants’reportsongrantclaims
(ii)PROFORMAREPORT–LIMITEDASSURANCE
Independent Limited Assurance Report in connection with [project]
OFFER LETTER/CONTRACT DATED [DATE][Reference]
To:Directors[andGrantProvider]10
Thisreportisproducedinaccordancewiththetermsofourengagementletterdated[XX]forthepurposeofreportingto[thedirectorsofclient](the‘company’)and[grantprovider](the‘grantprovider’)11inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].
[InsertappropriateclarifyinglanguagefromAppendixG]
[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedinthegrantofferletter,andtoproviderelevantfinancialinformationtotheprovider.]
Our approachWeconductedourengagementinaccordancewith[establishedframework12/theproceduressetoutinourengagementletterdated[date]].Weperformedalimitedassuranceengagementasdefinedin[theframework/ourengagementletter].
Forthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththeofferletter,whichisattachedasAppendix[]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.
Theobjectiveofalimitedassuranceengagementistoperformsuchproceduresastoobtaininformationandexplanationsinordertoprovideuswithsufficientappropriateevidencetoexpressanegativeconclusionon[theschedule].[Alimitedassuranceengagementissubstantiallylessinscopethanareasonableassuranceengagementandconsequentlydoesnotenableustoobtainassurancethatwewouldbecomeawareofallsignificantmattersthatmightbeidentifiedinapositiveassuranceengagement.Accordingly,wedonotexpressapositiveopinion.]
Workisperformedinaccordancewiththe[applicableframeworkaslaidoutintheengagementletter].
[Includesummaryofwork]
10Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.11Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.12TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant-
payingbodyinitsschemetermsandconditions.
31Frameworkdocumentforaccountants’reportsongrantclaims
Inherent limitations[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.13
Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grantprovider]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.]
ConclusionBasedonourworkdescribedinthisreport,nothinghascometoourattentionthatcausesustobelievethattheaccompanying[theschedule]hasnotbeenpreparedinallmaterialrespectsinaccordancewith[theframework/ourengagementletter].or
Basedontheproceduresperformedwehaveidentifiedthefollowingexceptionsthat[theschedule]hasnotbeenpreparedinallmaterialrespects,inaccordancewith[theframework/ourengagementletter].
[listexceptions]
FirmofAccountantsOfficeDate
13Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.
32 Frameworkdocumentforaccountants’reportsongrantclaims
(iii)PROFORMAREPORT–REASONABLEASSURANCE
Independent Reasonable Assurance Report in connection with [project]
OFFER LETTER/CONTRACT DATED [DATE][Reference]
To:Directors[andGrantProvider]14
Thisreportisproducedinaccordancewiththetermsofourcontractdated[XX]forthepurposeofreportingto[thedirectorsofclient](the‘company’)and[grantprovider](the‘grantprovider’)15inconnectionwiththegrantclaimforthemoniesreceivablefromthe[[grantprovider](the‘grantprovider’’)]/[grantprovider]underitsgrantofferletterdatedX(the‘offerletter’)inrespectof[projectname]/[phaseX]fortheperiodended[date][andinaccordancewiththetermsofourengagementletterdated[date](attachedhereto)].
[InsertappropriateclarifyinglanguagefromAppendixG]
[Respectiveresponsibilitiesofthecompanyand[firmofaccountants]Asdirectorsofthecompany,youareresponsibleforensuringthatthecompanymaintainsaccountingrecordswhichdisclosewithreasonableaccuracy,atanytime,thefinancialpositionofthecompany,andinrespectofgrantclaims,asthecompany’sdirectors(the‘directors’)youareresponsibleforcompilingclaimsinaccordancewithgrantofferletters,ensuringthatonlyeligibleitemsareincludedineachgrantclaimandforensuringthatalltermsofsuchofferlettershavebeencompliedwithorvariedinwritingwiththeprovider.Itisalsothedirectors’responsibilitytoextractrelevantfinancialinformationfromthecompany’saccountingrecords,tomakethecalculationsspecifiedinthegrantofferletter,andtoproviderelevantfinancialinformationtotheprovider.]
Our approachWeconductedourengagementinaccordancewith[establishedframework16].Weperformedareasonableassuranceengagementasdefinedin[theframework].
Forthepurposeoftheengagementwehavebeenprovidedbythedirectorswithaschedule(asdefinedundertheofferletter)showingthecompany’seligibleexpenditureandthenecessarycalculationsinaccordancewiththeofferletter,whichisattachedasAppendix[]tothisletter(the‘schedule’).Thedirectorsofthecompanyremainsolelyresponsiblefortheschedule.
Theobjectiveofareasonableassuranceengagementistoperformsuchprocedures[onasamplebasis]astoobtaininformationandexplanationswhichweconsidernecessaryinordertoprovideuswithsufficientappropriateevidencetoexpressapositiveconclusionon[theschedule].
14Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.15Reportwillbeaddressedtograntproviderwheretheyhaveenteredintoacontractwiththeaccountant.16TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant-
payingbodyinitsschemetermsandconditions.
33Frameworkdocumentforaccountants’reportsongrantclaims
Inherent limitations[Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportonthefinancialstatementsismadesolelyto[grantrecipient]’smembers,asabody,inaccordancewithChapter3ofPart16oftheCompaniesAct2006.Ourauditworkhasbeenundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformed.17
Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grantprovider]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.]
ConclusionInouropinion,[theschedule]hasbeenprepared,inallmaterialrespects,inaccordancewith[theframework18].
or
Exceptfor[detailminorexceptionsnoted],inouropinion[theschedule]hasbeenprepared,inallmaterialaspects,inaccordancewith[theframework].
or
Inouropinion[theschedule]hasnotbeenpreparedinallmaterialrespects,inaccordancewith[theframework].
[insertdetailsofissuesleadingtoqualificationofopinion]
FirmofAccountantsOfficeDate
17Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.
18TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant- payingbody.
34 Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLESOFTYPESOFWORDINGOROPINIONSTHATMAYNOTBEACCEPTABLETOACCOUNTANTSPROVIDINGSPECIALREPORTS
1. Wording giving an opinion on a matter as a statement of fact when that matter, by its nature, is inherently uncertain or a matter of judgement
Examplesinclude‘we certify’,wordingwhichaccountantswouldnotnormally(exceptwhenrequiredtobylegislation)beinapositiontouseasitimpliescompleteaccuracy.Accountantsalsoavoidusingwordsorphrasessuchas‘correct’or‘accurate’or‘we have ensured’forassertionsthatcanneverbemadewithabsolutecertainty.However,accountantscancertifythattheyhaveperformedanexaminationinaccordancewithagreedcriteria.
2. The use of the term ‘true and fair’ or ‘presents fairly’ when financial information is not prepared applying an acceptable financial reporting framework such as UK Accounting Standards or International Financial Reporting Standards as adopted by the EU
Theuseofotherphrasessuchas‘present fairly’or‘properly prepared’areavoidedunlesstheyareclearlyplacedincontext,forexample,‘present fairly in all material respects in the context of reporting upon this grant claim in accordance with…’.
3. ‘Fair and reasonable’ opinions
Accountantsgenerallyavoidgiving‘fair and reasonable’opinionsastheyarenormallyassociatedwithinvestmentbanksmakingrecommendationstoshareholdersinrespectoftransactions.Thereisalsotheriskthattheymightbeconstruedasvaluations,whichcangiveindependenceproblemsforaccountants.
4. Wording that might suggest that the grant-paying body is able to rely on the statutory audit of the grant recipient
Accountantsavoidanypossibilityofalinkbecomingestablishedbetweenthespecialreportandthestatutoryauditreport.Forexample,theyavoidphrasessuchas‘we audited the accounts and we…’or‘during our audit we …’.
5. Opinions that are open-ended or otherwise cannot be supported by the work carried out by the accountants
Accountantsavoidphrasesthatareopen-endedunlessthescopeoftheworkisclearbyreferencetotheengagementletterorrelevantstandardsorguidance,forexamplephrasessuchas‘we obtained all the explanations we considered necessary’or‘we have performed such procedures as we considered necessary’arenotacceptable.Accountantsdonotgiveopinionsthatarenotsupportedbytheworkcarriedout,suchasassertionsaboutcompletenessthatcannotbesupportedbyalimitedamountofworkthathasbeenperformed.Accountantscoulduse,‘we have performed the tests laid out in the schedule/work programme which is attached to the engagement letter’.Thesewordswouldlinkthereportbacktothescopeofwork.Otherexamplesofinappropriatereportingincludeprovidingpositiveopinionsonsolvencyorprospectiveinformationwhichisinherentlyuncertain.Inthesameway,itisimpossibleforaccountantstobeablepositivelytostatewhetherreceiptofagranthascreatedorsafeguardedaparticularnumberofjobs.Inaddition,apositiveopiniononwhetherornotthegrantrecipienthasactuallyobtained‘value for money’canneverbegivenasVFMisanintangibleconcept.However,itisreasonabletodeterminewhetheraclienthassoughtVFMbyreferencetospecificcriteria.Areportcanonlygiveassuranceonthebasisoftheinformationavailableatthetimethatitisprovided.
6. Opinions which accountants do not have the necessary competence to provide
Accountantsavoidopinionsthatarenotwithintheirprofessionalcompetence,suchasanopinionofanactuarialnatureorapropertyvaluation,wheretherehasbeennoinputfromarelevantexpert.Anotherexampleofthiswouldbetheappropriatenessofinsurancecover.
APPENDIXD
35Frameworkdocumentforaccountants’reportsongrantclaims
7. Opinions on matters beyond the accountants’ knowledge and experience
Accountantsavoidgivinganyopinionabouthow‘appropriate’operationalinformationorrecordsbeingheldormaintainedbythegrantrecipientare,wheretheinformationorrecordsrelatetomattersconcerningthespecificoperationalcircumstancesofthegrantrecipientwhicharebeyondthescopeoftheaccountants’professionalknowledgeandexperience.
8. Wording that is open to interpretation
Certainwordsorphrasesmightbeopentointerpretationandtheseareonlyappropriatetouseinclearlydefinedcircumstanceswherethemeaningiswellestablishedandunderstood.Theword‘review’isbestavoidedasitcanbeunclearwhathasbeenreviewedandtheextentofthework.InadditionifthetermisuseditmaybemisinterpretedthatInternationalStandardsonReviewEngagementsasissuedbytheIAASBorInternationalStandardsonReviewEngagements(ISRE)(UKandIreland)2410,Review of Interim Financial Information Performed by the Independent Auditor of the Entityhasbeenappliedwheninfact,thisisnotthecase.
Wordstoavoidcanalsoincludeaccountingterms,suchas‘net current assets’insectorswherespecificadjustingitemsmightberecognisedwhenassessingliquidity.Accountantsalwaysdefinetermsifthemeaningmightbeunclearanddonototherwiseusesuchterms.Theword‘material’isavoidedunlessthiscanbereferencedtoacleardefinition.
9. Reports on internal controls
Reportsoninternalcontrolsareonlypossibleinwell-definedandwell-establishedcircumstances,wherethereportingarrangementshavebeenagreedinaclearmanner.Reportsonsystemsandcontrolsareavoidedwherethereareinadequatecriteriaspecified.Reportsincludeanindicationofthelimitationsofasystemandarerelatedtoapointintimeorperiod.
GeneralguidanceisgivenintheAPBBriefingPaperProviding assurance on the effectiveness of internal controlspecificallyinrelationtocertainentitiesinbothAAF01/06,Assurance reports on internal controls of service organisations made available to third partiesandITF01/07,Assurance reports on the outsourced provision of information services and information processing services.Itisalsousefultoclarifyinwritingtheresponsibilitiesofmanagementandinparticular,toindicatethattheyareresponsibleforidentifying,evaluatingandmanagingnewandchangingrisksonanongoingbasis.
10. Reports without addressees
Accountantsdonotprovidereportswhenitisuncleartowhomthereportisbeingprovided.
11. Reports on financial information which is not explicitly approved by the grant recipient
Thegrantrecipienthasresponsibilityforthefinancialinformationbeingprovidedanditis,therefore,notappropriatefortheaccountantstoreportonfinancialinformationunlessitisclearthatthishasfirstbeenapprovedbythegrantrecipient.
12. Qualifications in the covering letter only
Accountantsprovidequalificationsintheircoveringletteronlywhenapre-printedreport(withwordingthatisacceptable)isrequested.Inthiscase,aclearreferencetothereportandqualificationisincludedinthecoveringletterandthepre-printedreportshouldbeannotatedinsomewaysothatitisclearthatitshouldnotbereadinisolationfromthecoveringletter.Otherwise,suchqualificationsareincludedinthemainbodyofthereport,sothattheycannotbedetached.Henceaccountantsshouldincludeanyreservationsabouttheclaimorqualificationsontheclaiminthemainbodyofthereport.Inasimilarvein,allexplanationsofrespectiveresponsibilitiesofthegrantrecipient,grant-givingbodyandreportingaccountantsorlimitsbeingplacedoncirculationofthereportordisclaimingofliabilitybythereportingaccountantshouldbeincludedinthemainbodyofthereport.Coveringlettersshouldnormallybeusedtoexplaintotherecipientsoftheletterthatareportisbeingenclosed.
13. Opinions which would impair the auditors’ independence
Accountantsdonotprovideopinionsthatwouldimpairtheirindependenceasauditors.Forexample,wherethegrantrecipientisanSECregistrant,certainformsofvaluationopinionarenotpermittedfromauditors.
36 Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLEOFAMODELTRIPARTITEENGAGEMENTLETTER
When a sponsoring body is to be bound into the engagement process, then all references to thegrant-paying body should also include references to the sponsoring body.
Government Grant Claim/ returns – the model tripartite agreement Addresseedetails:(i) The[grant-payingbody](ii) Grantrecipient
DearSirsGovernmentgrantreports/confirmationsWearewritingtoconfirmthetermsandconditionsonwhichyouhaveengaged[nameoffirm]toprovidereports/confirmationsinconnectionwith[descriptionornameofgrant]paidby[grant-payingbody]to[grantrecipient].Thesetermsandconditionswillapplytothereports/confirmationstobesuppliedfortheperiod[ended/ending…]andforsubsequentperiodsunlessotherwiseagreedinwriting.Wewillwriteseparatelytothegrantrecipientregardingpracticalmatterssuchasthetimingofourwork,staffingandourcharges.Ourinvoicewillbeaddressedto[grantrecipient],whowillbesolelyresponsibleforpaymentinfull.
Scope of our workWewillcompletetherelevantworkspecifiedbelowontheschedule(asdefinedintheofferletter).Thescheduleistobepreparedby,andisthesoleresponsibilityof[grantrecipient].Ourworkwillcomprisethefollowing:
[Setoutheredetailsofplannedworkrelevanttothenatureoftheclaimorgrant,typeofengagementandformandcontentofreportrequired]
[Havingsetoutthescopeabove,selectoneofthefollowing]
[Reasonable assurance]Onthebasisofourwork,wewillreportwhether,inouropinion,[theschedule]hasbeenprepared,inallmaterialrespects,inaccordancewith[theframework19].
[Limited assurance]Onthebasisofourwork,wewillreportthatnothinghascometoourattentionthatcausesustobelievethat[theschedule]hasnotbeenpreparedinallmaterialrespectsinaccordancewith[theframework/engagementletter].
[Agreed-upon procedures]WewillperformthespecifiedproceduressetoutinAppendix[X]andthisengagementletter.Uponcompletionandonthebasisofthoseprocedures,wewillprovideyouwithareportwiththeresultsofourfindings.Youhavebothagreedthatthescopeofourwork,asspecifiedabove,issufficientforyourpurposes.[Preparationofanydocumentthat[grantrecipient]mayberequiredtosubmitto[grant-payingbody]inconnectionwithourworkwillbetheresponsibilityof[grantrecipient]’sdirectors20,whowillalsoberesponsibleforensuringthat[grantrecipient]maintainsadequateaccountingrecordsandsuchotherrecordsasmayberequiredby[grant-payingbody].[Grantrecipient]’sdirectorswill,onrequest,supplyuswithconfirmationofmattersaffectingourworkwhicharedependentonthedirectors’judgement.]
Saveassetoutabove,wewillnotseektoestablishtheaccuracy,completenessorreliabilityofanyoftheinformationordocumentationmadeavailabletous.Ourworkwillnotamounttoanauditoffinancialstatementsandwillnotgivethesamelevelofassuranceasanaudit.
Ourauditworkonthefinancialstatementsof[grantrecipient]iscarriedoutinaccordancewithourstatutoryobligationsandissubjecttoseparatetermsandconditions.Thisengagementwillnotbetreatedashavinganyeffectonourseparatedutiesandresponsibilitiesas[grantrecipient]’sexternalauditors.Ourauditreportsonthefinancialstatementsaremadesolelyto[grantrecipient]’smembers,asabody,inaccordancewith
APPENDIXE
19TheframeworkwilleitherbetheISAE3000,Assurance engagements other than audits and reviews of historical financial informationortheapplicablecriteriasetbythegrant- payingbody.
20Allreferencestodirectorsinthismodelmeaneitherdirectors,partners,proprietors,boardmembers,trustees,companysecretary,orotherauthorisedsignatory,asappropriate.
37Frameworkdocumentforaccountants’reportsongrantclaims
Chapter3ofPart16oftheCompaniesAct2006.Ourauditworkisundertakensothatwemightstateto[grantrecipient]’smembersthosematterswearerequiredtostatetotheminanauditor’sreportandfornootherpurpose.Ourauditsof[grantrecipient]’sfinancialstatementsarenotplannedorconductedtoaddressorreflectmattersinwhichanyoneotherthansuchmembersasabodymaybeinterestedforsuchpurpose.21Inthesecircumstances,tothefullestextentpermittedbylaw,wedonotacceptorassumeanyresponsibilitytoanyoneotherthan[grantrecipient]and[grantrecipient]’smembersasabody,forourauditwork,forourauditreports,orfortheopinionswehaveformedinrespectofthoseaudits.
Tothefullestextentpermittedbylawwedonotandwillnot,byvirtueofourreports/confirmationsorotherwise,assumeoracceptanydutyofcareorliabilityunderthisengagementto[grantrecipient]orto[grant-payingbody]ortoanyotherparty,whetherincontract,negligenceorotherwiseinrelationtoourauditsof[grantrecipient]’sfinancialstatements.
Havingcarriedoutourworkwewillissuereports/confirmationsaddressedto[grantrecipient]and[grant-payingbody]intheformsetoutintheappendixtothisengagementletter,ifourfindingssupportthis.Indeterminingtheformofourreportwewilltakeintoaccount,(thoughwithoutbeingboundbyit)anyformofreportingthatthe[grant-payingbody]hassuggestedoragreedwiththeICAEWfollowingconsultationwiththem.Wewilldelivercopiesto[grantrecipient]atthesametime.Thisletterwillbeidentifiedinourreports/confirmationsasthe‘tripartiteagreement’underwhichourreports/confirmationshavebeenissued.Theaccountant’sreportsmustnotberecitedorreferredtoinwholeorinpartinanyotherdocument(including,withoutlimitation,anypublicationissuedbythe[grant-payingbody])withoutthepriorwrittenapprovaloftheaccountantexceptwherethereisalegalorstatutoryrightofaccess.Ifweneedtoqualifyouropinion,wewillissueaqualifiedreportbutwillcontinuetousetheagreedformofreportforallaspectsthatarenotqualified.
Other mattersOurdutiesandliabilitiesinconnectionwiththisengagementowedto[grantrecipient]andto[grant-payingbody]willdiffer.
[Detailanyexclusionsandlimitationsonthefirm’sliabilitytoboththegrant-payingbodyandthegrantrecipientandanyrelevantqualificationsrequiredtosatisfystatutoryreasonablenesscriteria.ConsidertheguidanceintheICAEW’stechnicalreleaseAAF01/10,Framework document for accountants’ reports on grant claims.
Ourdutyto[grant-payingbody]willbelimitedtodeliveryofreports/confirmationsintheagreedformtofacilitatethedischargeofitsstatutoryobligations.Deliveryofsuchreports/confirmations(orthesupplyofconfirmationthatweareunabletodosointheagreedform)atanytimewilldischargethatobligationinfull.Wewillnotowe[grant-payingbody]anyotherduty,incontract,negligenceorotherwise,inconnectionwithourreports/confirmationsortheirpreparation.
Thisagreementshallbesubjecttoandgovernedby[therelevantcountryandlegalsystem]andalldisputesarisingfrom,orunder,itshallbesubjecttotheexclusivejurisdictionofthe[relevant]courts.
[Detailorappendanyothertermsandconditionstoapplytothiswork.]
Pleaseconfirm,bysigningbelow,youragreementtothisletter.Onceyouhavedoneso,thisletterwillformatripartitecontractbetweenusinrespectofthematterscovered.Ifyouwishtodiscussanyaspectsofthisletter,pleasecontact[nameandtelephonenumber].
Yoursfaithfully
[Nameofaccountant]
[Grantrecipient]
[Grant-payingbody]
21Thisparagraphisnecessaryinthosesituationswheretheaccountantsarealsotheauditorsofthegrantrecipient.Accountantsshouldamend‘members’andstatutory referencesandotherlanguageasrequiredifthegrantrecipientisnotacompany.
38 Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLEOFSTANDARDISEDTERMSOFENGAGEMENT
(Agreed as part of the grant conditions instead of a tripartite engagement.)
Whereasponsoringbodyistobeboundintotheengagementprocess,thenallreferencestothegrant-payingbodyshouldalsoincludereferencestothesponsoringbody.Example:‘Inthesepre-agreedtermsofengagement,referencestothe[grant-payingbody]shallbereadasincorporatingreferencesto[sponsoringbody].’
Thefollowingarethepre-agreedtermsofengagementonwhichthe[grant-payingbody]engagesaccountantstoperform[areasonableorlimitedassuranceoragreed-uponprocedures]engagementandreportinconnectionwiththe[nameofgrantclaim].
The[grant-payingbody]acceptsthatanagreementbetween[grantrecipient],itsreportingaccountantsandthe[grant-payingbody]onthesetermsisformedwhentheaccountantssignandsubmittothe[grant-payingbody]areportassetoutinClause3herein.[NB: The [grant-paying body] will not need to sign anything. By publishing this document the [grant-paying body] confirms that these pre-agreed terms form its agreement with [grant recipient] and the reporting accountants. Once the accountants’ report is submitted to the [grant-paying body] in accordance with these terms the [grant-paying body] will accept that an agreement is formed. If the terms of the standardised engagement letter are to be revised, the [grant-paying body] will need to confirm its acceptance of the new terms before an agreement is formed.]
Inthesetermsofengagement:
‘[grant-payingbody]’referstothebodythatisprovidingthegrantfunding;
‘[grantrecipient]’referstotheorganisationthatisrequiredtosubmitthereporttothe[grant-payingbody];
and
‘theaccountant’referstothe[grantrecipient]’sreportingaccountants.
1. Introduction
The[grantrecipient]isrequiredtosubmittothe[grant-payingbody]reportsassetoutinClause3belowthatarealsosignedbyanaccountanttoprovideindependentassurance.Thesetermsofengagementsetoutthebasisonwhichtheaccountantwillsignthereport.
2. The [grant recipient]’s responsibilities
2.1 The[grantrecipient]isresponsibleforproducingthe[information],maintainingproperrecordscomplyingwiththetermsofanylegislationorregulatoryrequirementsandthe[grant-payingbody]’stermsandconditionsofgrant(‘thegrantconditions’)andprovidingrelevantinformationtothe[grant-payingbody]onabasisinaccordancewiththerequirementsofthegrantconditions.The[grantrecipient]isresponsibleforensuringthatthenon-financialrecordscanbereconciledtothefinancialrecords.
2.2 Themanagementofthe[grantrecipient]willmakeavailabletotheaccountantallrecords,correspondence,informationandexplanationsthattheaccountantconsidersnecessarytoenabletheaccountanttoperformtheaccountant’swork.
2.3 The[grantrecipient]andthe[grant-payingbody]acceptthattheabilityoftheaccountanttoperformitsworkeffectivelydependsuponthegrantrecipientprovidingfullandfreeaccesstothefinancialandotherrecordsandthe[grantrecipient]shallprocurethatanysuchrecordsheldbyathirdpartyaremadeavailabletotheaccountant.
2.4 Theaccountantacceptsthat,whetherornotthe[grantrecipient]meetsitsobligations,theaccountantremainsunderanobligationtothe[grant-payingbody]toperformitsworkwithreasonablecare.Thefailurebythe[grantrecipient]tomeetitsobligationsmaycausetheaccountanttoqualifyitsreportorbeunabletoprovideareport.
APPENDIXF
39Frameworkdocumentforaccountants’reportsongrantclaims
3. Scope of the accountant’s work
3.1 The[grantrecipient]willprovidetheaccountantwithsuchinformation,explanationsanddocumentationthattheaccountantconsidersnecessarytocarryoutitsresponsibilities.Theaccountantwillseekwrittenrepresentationsfrommanagementinrelationtomattersforwhichindependentcorroborationisnotavailable.Theaccountantwillalsoseekconfirmationthatanysignificantmattersofwhichtheaccountantshouldbeawarehavebeenbroughttotheaccountant’sattention.
3.2 Theaccountantwillperformthefollowingworkinrelationtoreportsrequiredbythe[grant-payingbody]:
3.2.1 Grantreturn:Theaccountantwill[carryoutareasonable/limitedlevelofassuranceassignmentorperformagreedprocedures(tests)][assetoutinthetermsandconditionsofthegrant]andsubjecttoanyadversefindingswillproduceareportintheformsetoutinAppendixX(theseshouldbeinlinewiththeICAEW’stechnicalreleaseAAF01/10,Framework document for accountants’ reports on grant claims).
3.2.2 Wherea[reasonable/limited]levelofassuranceisrequiredbythe[grant-payingbody],thecriteriaisidentifiedaspertheAppendixtothisletter.
3.2.3 Foranagreeduponproceduresengagement,thetestsarelaidoutintheAppendixtothisletter.
3.3 Theaccountantwillnotsubjecttheinformationprovidedbythe[grantrecipient]tocheckingorverificationexcepttotheextentexpresslystated.Whiletheaccountantwillperformtheaccountant’sworkwithreasonableskillandcare,theaccountant’sworkshouldnotbereliedupontodiscloseallmisstatements,fraudorerrorsthatmightexist.
4. Form of the accountant’s report
4.1 Theaccountant’sreportsarepreparedonthefollowingbases:
4.1.1 theaccountant’sreportsarepreparedsolelyfortheconfidentialuseofthe[grantrecipient]andthe[grant-payingbody]andsolelyforthepurposeofsubmissiontothe[grant-payingbody]inconnectionwiththe[grant-payingbody]’srequirementsinconnectionwith[nameofgrant].Theymaynotberelieduponbythe[grantrecipient],orthe[grant-payingbody]foranyotherpurpose;
4.1.2 withoutimposingontheaccountantandwithouttheaccountantassuming(orbeingperceivedasassuming)anydutyorresponsibilityandwithoutimposingoracceptinganyliabilitytoanyoneexceptthe[grantrecipient]andthe[grant-payingbody],the[grant-payingbody]maydisclosethereportstootherswhodemonstratestatutoryrightsofaccesstothereport;
4.1.3 neitherthe[grantrecipient],the[grant-payingbody][orothers]mayrelyonanyoralordraftreportstheaccountantprovides.Theaccountantacceptsresponsibilitytothe[grantrecipient],the[grant-payingbody]fortheaccountant’sfinalsignedreportsonly;
4.1.4 thereportwillbepreparedsolelyfortheconfidentialuseof[grantrecipient][andgrant-payingbody],andsolelyforthepurposeoffacilitatingthegrantclaim.Thereportwillbereleasedto[grantrecipient][andgrant-payingbody]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsent,exceptwherethereisalegalorstatutoryrightofaccess.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthereporttoanypartyotherthan[grantrecipient][andgrant-payingbody],weacknowledgethat[grantrecipient][andgrant-payingbody](oroneofthem)mayberequiredtodisclosethisreporttopartiesdemonstratingastatutoryrighttoseeit,toenablesuchpartiestoexercisetheirstatutoryrightsofaccesstothisreport;
4.1.5 tothefullestextentpermittedbylaw,exceptforthe[grantrecipient]andthe[grant-payingbody],thefirmofaccountants,itspartnersandstaffneitherowenoracceptanydutytoanyperson(including,withoutlimitation,anypersonwhomayuseorrefertoanyofthe[grant-payingbody]’spublications)andshallnotbeliableforanyloss,damageorexpenseofwhatsoevernaturewhichiscausedbyanyperson’srelianceonrepresentationsintheaccountant’sreports.
40 Frameworkdocumentforaccountants’reportsongrantclaims
5. Liability provisions
5.1 Theaccountantwillperformtheengagementwithreasonableskillandcareandacceptsresponsibilitytothe[grantrecipient],the[grant-payingbody]forlosses,damages,costsorexpenses(‘losses’)causedbyitsbreachofcontract,negligenceorwilfuldefault,subjecttothefollowingprovisions:
5.1.1 Theaccountantwillnotberesponsibleorliableifsuchlossesareduetotheprovisionoffalse,misleadingorincompleteinformationordocumentationorduetotheactsoromissionsofanypersonotherthantheaccountant,exceptwhere,onthebasisoftheenquiriesnormallyundertakenbyaccountantswithinthescopesetoutinthesetermsofengagement,itwouldhavebeenreasonablefortheaccountanttodiscoversuchdefects.
5.1.2 Theaccountantacceptsliabilitywithoutlimitfortheconsequencesofitsownfraudandforanyotherliabilitywhichitisnotpermittedbylawtolimitorexclude.
5.1.3 Subjecttothepreviousparagraph(5.1.2),thetotalaggregateliabilityoftheaccountantwhetherincontract,tort(includingnegligence)orotherwise,tothe[grantrecipient]andthe[grant-payingbody],arisingfromorinconnectionwiththeworkwhichisthesubjectoftheseterms(includinganyadditionorvariationtothework),shallnotexceedtheamountof[to be discussed and negotiated].
5.2 The[grantrecipient]andthe[grant-payingbody]agreethattheywillnotbringanyclaimsorproceedingsagainstanyindividualpartners,members,directorsoremployeesoftheaccountant.Thisclauseisintendedtobenefitsuchpartners,members,directorsandemployeeswhomayenforcethisclausepursuanttotheContracts(RightsofThirdParties)Act1999(‘theAct’).NotwithstandinganybenefitsorrightsconferredbythisagreementonanythirdpartybyvirtueoftheAct,thepartiestothisagreementmayagreetovaryorrescindthisagreementwithoutanythirdparty’sconsent.Otherthanasexpresslyprovidedintheseterms,theActisexcluded.
5.3 Anyclaims,whetherincontract,negligenceorotherwise,mustbeformallycommencedwithin[insertnumber–eg4][years]afterthepartybringingtheclaimbecomesaware(oroughtreasonablytohavebecomeaware)ofthefactswhichgiverisetotheactionandinanyeventnolaterthan[insertnumber–eg6][years]afterrelevantreportwasissued(or,ifnoreportwasissued,whentheaccountantacceptedtheengagementinwriting).Thisexpresslyoverridesanystatutoryprovisionwhichwouldotherwiseapply.
5.4 Thisengagementisseparatefromandunrelatedtotheaccountant’sauditworkonthefinancialstatementsofthe[grantrecipient]forthepurposesofanyapplicablestatutoryorregulatoryorotherauditingframeworkandnothinghereincreatesobligationsorliabilitiesregardingtheaccountant’sauditwork,whichwouldnototherwiseexist.
41Frameworkdocumentforaccountants’reportsongrantclaims
6. Fees
Theaccountant’sfees,togetherwithVATandout-of-pocketexpenses,willbeagreedwithandbilledtothe[grantrecipient].The[grant-payingbody]isnotliabletopaytheaccountant’sfees.
7. Quality of service
Theaccountantwillinvestigateallcomplaints.The[grant-payingbody]orthe[grantrecipient]havetherighttotakeanycomplainttotheICAEW.The[grant-payingbody]orthe[grantrecipient]mayobtainanexplanationofthemechanismsthatoperateinrespectofacomplainttotheICAEWatwww.icaew.co.uk/complaintsorbywritingtotheICAEWattheICAEWProfessionalStandardsOffice,MetropolitanHouse,321AveburyBoulevard,MiltonKeynesMK92FZUK.
8. Providing services to other parties
Theaccountantwillnotbepreventedorrestrictedbyvirtueoftheaccountant’srelationshipwiththe[grantrecipient]andthe[grant-payingbody],includinganythinginthesetermsofengagement,fromprovidingservicestootherclients.Theaccountant’sstandardinternalproceduresaredesignedtoensurethatconfidentialinformationcommunicatedtotheaccountantduringthecourseofanassignmentwillbemaintainedconfidentially.
9. Applicable law and jurisdiction
9.1 Thisagreementshallbegovernedby,andinterpretedandconstruedinaccordancewith,[relevantcountry]law.
9.2 The[grantrecipient],the[grant-payingbody]andtheaccountantirrevocablyagreethatthecourtsof[relevantcountry]shallhaveexclusivejurisdictiontosettleanydispute(includingclaimsforset-offandcounterclaims)whichmayariseonanybasisinconnectionwiththevalidity,effect,interpretationorperformanceof,orthelegalrelationshipestablishedbythisagreementorotherwisearisinginconnectionwiththisagreement.
10. Alteration to terms
Alladditions,amendmentsandvariationstothesetermsofengagementshallbebindingonlyifinwritingandsignedbythedulyauthorisedrepresentativesoftheparties.Thesetermssupersedeanypreviousagreementsandrepresentations(unlessbasedonfraud)betweenthepartiesinrespectofthescopeoftheaccountant’sworkandtheaccountant’sreportortheobligationsofanyofthepartiesrelatingthereto(whetheroralorwritten)andrepresentstheentireagreementandunderstandingbetweentheparties.Thesetermsdonotaffectanyseparateagreementinwritingbetweenthe[grantrecipient]andtheaccountant.
42 Frameworkdocumentforaccountants’reportsongrantclaims
EXAMPLEOFCLARIFICATIONLANGUAGEFORANACCOUNTANTS’REPORT
Where the grant-paying body signs the engagement letter or the pre-agreed terms published by the grant-paying body apply.
Ourreportispreparedsolelyfortheconfidentialuseof[insertnameofgrantrecipient][andinsertnameofgrant-payingbody],andsolelyforthepurposeoffacilitatingthegrantclaim.Thisreportisreleasedto[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsentexceptwherethereisastatutoryrightofaccess.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthisreporttoanypartyotherthan[insertnameofgrantrecipient][andinsertnameofgrant-payingbody],weacknowledgethat[insertnameofgrantrecipient][andinsertnameofgrant-payingbody](oroneofthem)mayberequiredtodisclosethisreporttopartiesdemonstratingastatutoryrighttoseeit,toenablesuchpartiestoexercisestatutoryrightsofaccesstothisreport.
Thisreportisdesignedtomeettheagreedrequirementsof[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]andparticularfeaturesofourengagementdeterminedbytheirneedsatthetime.Thisreportshouldnotthereforeberegardedassuitabletobeusedorreliedonbyanyotherpartywishingtoacquireanyrightsagainst[nameofaccountant]foranypurposeorinanycontext.Anypartyotherthan[insertnameofgrantrecipient][andinsertnameofgrant-payingbody]whichobtainsaccesstothisreportoracopyandchoosestorelyonthisreport(oranypartofit)willdosoatitsownrisk.Tothefullestextentpermittedbylaw,[nameofaccountant]willacceptnoresponsibilityorliabilityinrespectofthisreporttoanyotherpartyandshallnotbeliableforanyloss,damageorexpenseofwhatsoevernaturewhichiscausedbyanyperson’srelianceonrepresentationsinthisreport.
[Freedom of Information Act wording – optional] If [insert name of grant-paying body] receives a request for disclosure of this report under the Freedom of Information Act 2000, [insert name of grant-paying body] is asked to consult with [insert name of accountants] and not to make any disclosure in response to any such request without taking into consideration any representations that [insert name of accountants] might make.
Where the grant-paying body does not sign the engagement letter and the pre-agreed terms published by the grant-paying body do not apply.
Ourreportispreparedsolelyfortheconfidentialuseof[insertnameofgrantrecipient]andsolelyforthepurposeoffacilitatingthegrantclaim.Thisreportisreleasedto[insertnameofgrantrecipient]onthebasisthatitshallnotbecopied,referredtoordisclosed,inwholeorinpart(saveasotherwisepermittedbyagreedwrittenterms),withoutourpriorwrittenconsent.Withoutassumingoracceptinganyresponsibilityorliabilityinrespectofthisreporttoanypartyotherthan[insertnameofgrantrecipient],weacknowledgethat[insertnameofgrantrecipient]mayberequiredtodisclosethisreportto[insertnameofgrant-payingbody]orotherpartiesdemonstratingastatutoryrighttoseeit,toenable[insertnameofgrant-payingbody]andsuchotherpartiestoexercisestatutoryrightsofaccesstothisreport.
Thisreportisdesignedtomeettheagreedrequirementsof[insertnameofgrantrecipient]andparticularfeaturesofourengagementdeterminedby[insertnameofgrantrecipient]’sneedsatthetime.Thisreportshouldnotthereforeberegardedassuitabletobeusedorreliedonbyanyotherpartywishingtoacquireanyrightsagainst[nameofaccountant]foranypurposeorinanycontext.Anypartyotherthan[insertnameofgrantrecipient]whichobtainsaccesstothisreportoracopyandchoosestorelyonthisreport(oranypartofit)willdosoatitsownrisk.Tothefullestextentpermittedbylaw,[nameofaccountant]willacceptnoresponsibilityorliabilityinrespectofthisreporttoanyotherparty.
APPENDIXG
43Frameworkdocumentforaccountants’reportsongrantclaims
LIABILITYCAPSANDPROPORTIONALITYCLAUSE
Example of a liability cap for the accountants’ reporting engagement, where a duty is accepted to the grant recipient and to the grant payer.22
Tothefullestextentpermittedbylaw,thetotalaggregateliability,whetherto[insertnameofgrantrecipient]orto[insertnameofgrant-payingbody]orboth,arisingonanybasis,whetherincontract,tort(includingnegligence)orotherwise,of[insertnameofaccountants]foranylosseswhatsoeverandhowsoevercausedarisingfromorinanywayconnectedwiththisengagementshallnotexceed[insertamount](includinginterest).
Wherethereismorethanonepartytowhom[theaccountant]acceptsresponsibility,thelimitoftheliabilityspecifiedwillhavetobeallocatedbetweenthoseparties.Suchallocationwillbeentirelyamatterforthoseparties,andtheywillbeundernoobligationtoinform[nameofaccountants]ofit;if(forwhateverreason)nosuchallocationisagreed,thepartieswillnotdisputethevalidity,enforceabilityoroperationofthelimitofliabilityonthegroundsthatnosuchallocationwasagreedorthatanysuchallocationisofanunreasonablylowsum.
Possible words for a proportionality clause:
Subjecttothelimitationon[theaccountant]’sliability,which(withthisparagraph)shallhavenoapplicationtoanyliabilitywhichcannotlawfullybeexcludedorlimited,[theaccountant]’sliabilityshallinaggregatebelimitedtothatproportionofthetotallossordamage,aftertakingintoaccountcontributorynegligence(ifany),whichisjustandequitablehavingregardtotheextentoftheresponsibilityof[theaccountant]forthelossordamageconcerned,andtheextentofresponsibilityofanyotherpersonalsoresponsibleorpotentiallyresponsible(‘otherperson’).Inordertocalculatetheproportionateshareof[theaccountant]’sliability,noaccountshallbetakenofanymatteraffectingthepossibilityofrecoveringcompensationfromanyotherperson,includingtheotherpersonhavingceasedtoexist,havingceasedtobeliable,havinganagreedlimitonitsliabilityorbeingimpecuniousorforotherreasonsunabletopay,andfullaccountshallbetakenoftheresponsibilitytobeattributedtoanyotherpersonwhetherornotitisbeforethecompetentcourtasapartytotheproceedingsorasawitness.
APPENDIXH
22Thisisanexampleofaliabilitycaponly,whichwillbeoneofanumberofprovisionsrelatingtotheaccountants’liabilityandanylimitationsthereon.Forexample,theliability provisionswillneedtomakeitclearthattheaccountantsarenotseekingtoexcludethoseliabilities(suchasliabilityfortheirownfraud)whichcannotbeexcludedbylaw.
Terms Meaning
44 Frameworkdocumentforaccountants’reportsongrantclaims
GLOSSARYOFTERMS
Accountants Thetermaccountants,referstoanindividualaccountant,firmofaccountants,partner,director,orengagementleaderwhoareresponsibleforthereportingengagement.Theaccountantsprovidetherequestedreportsseparatelyfromtheauditoftheannualfinancialstatementsoftheclient.Thetermaccountantsisthereforealsousedtodifferentiatefromauditorswhoaudittheannualfinancialstatements.
Additionality Theextrathingsthathappenasaresultofthegrant,suchasneworexpandedservices,morebeneficiariesparticipating,improvedaccesstowidentake-up.DemonstratingadditionalityisgenerallyamandatoryrequirementforprojectsreceivingEuropeanfunding.
Audit Anauditisusuallycarriedoutonanorganisation’sfinancialstatementsinaccordancewithstatutoryobligations.Anauditwillbesubjecttoaseparateengagement.Theauditreportwillbeprovidedseparatelyfromtheaccountants’reportongrantclaimsandreturns.Thetermauditorsisthereforeusedtodifferentiatefromaccountantswhowillprovideotherreportsonthesegrantsclaimsandreturns.
Auditagencies PublicsectorauditsintheUKaresubjecttoavarietyofauditandrelatedassuranceregimes.Thisworkiscarriedoutbyfivenational‘auditagencies’,whichare• NationalAuditOffice• AuditCommission• AuditScotland• WalesAuditOffice• NorthernIrelandOffice.Auditandassuranceworkisalsocarriedoutbyprivatesectorfirmscommissionedorengagedbytheauditagencies.
Clients Thegrantrecipients.Theorganisationsthatarereceivingthemoney.
CommitteeofPublicAccounts(PAC)
TheCommitteeofPublicAccountsisaSelectCommitteeoftheHouseofCommons.Historically,theprimarypurposeofthePAC’senquirieswastosatisfyitselfontheaccountingforandregularityandproprietyofpublicexpenditure.ThePACretainsitsinterestinthesematters,butitalsoexploresmattersrelatedtoeconomy,efficiencyandeffectivenessofgovernmentbusiness.
Contributionsinkind
Non-cashcontributionstoaprojectsuchasequipment,facilities,resourcesorvolunteertime.
Devolvedadministrations
PublicsectorbodieswhichsupporttheelectedgovernmentsinScotland,WalesandNorthernIreland.
Engagementletter
Thesearethetermsoftheaccountantsengagement(withtherecipient,andsometimesthegrant-payingbody).Thisenablesallthreepartiestoclarifyexpectations,thescopeoftheauditor’sworkandtheagreedformoftheaccountant’sconclusionandreport.Ifagrant-payingbodyawardsmanysimilargrants,itmayissuea‘standardengagementletter’.
Grant Theterm‘grant’coversawiderangeofpaymentsbygovernmentbodiesforvariouspurposes.Inthisguidance,referencetograntmoniesisinrelationtopaymentsmadebythegrant-payingbodytoanorganisationwherethegrantistobeusedforaspecificpurposeandthegrant-payingbodyseekstoimposespecificcontrolsovertheexpenditure.
Grantinaid Grantinaidiswhenagovernmentdepartmentorothersponsoringbodyfinancesallorpartofthecostsofanorganisationbutthebodyoperatesatarm’slengthandthesponsoringbodydoesnotseektoimposedetailedcontrolsovertheexpenditure.
Grant-payingbodies
Thesearethebodiesthatareprovidingthefundingdirectlytograntrecipients.
Grantrecipients Theseorganisationsreceivethefundingfromthegrant-payingbodies.
Terms Meaning
45Frameworkdocumentforaccountants’reportsongrantclaims
Matchfunding Matchfunding,(ormatchedfundingorpartnershipfunding)arrangementsarewhenthegrantrecipientisrequiredtomakeacontributiontotheproject,eitherthroughfundingorasacontributioninkind.Manygrants,includingthosefromEuropeanStructuralFunds,willmeetonlypartofthefullprojectcost.Thismeansthattheremainingcostshavetobemetfromothersources,the‘matchfunds’,anditwilltherecipient’stasktosecurethese.Potentialsourcesofmatchfundsinclude:• othergovernmentprogrammesandgrants;• grantsfromlocalauthoritiesandotherstatutorybodies;• contributionsfromthevoluntarysector,includingdonationsfromcharitiesandtrusts;• contributionsfromtheprivatesector;and• loansfromvariousorganisations.Matchfundingcaninclude‘contributionsinkind’aswellascash–exampleswouldbetheuseoftherecipient’spaidstaffontheproject,volunteers,andaccommodation.
NDPB Non-DepartmentalPublicBody.Theyarebetterknownas‘quangos’.Thesearenotpartofgovernmentdepartmentsandarenotstaffedbycivilservants.Examplesincluderegionaldevelopmentagenciesandnationalparkauthorities.
Objective(ofthegrant)
Thegrant’sobjectiveswillbethesupportedactivitieswhichwilldeliverthechangesthegrantismeanttobringabout.Theobjectiveneedstobesetwhenthegrantisfirstdesignedanditshouldfitinwiththegrant-payingbody’sownstrategicobjectives.Thisthenenablestheapplicationformsandbidevaluationschemetobewritten.
Offerletter Letterfromthepayingbodytotherecipientwhichconfirmsthatthebidorapplicationforgrant(includinganydeliveryplan)isacceptableandthatfundingisawarded.Theofferlettergivesfulldetailsofthegrant,including:• thenameoftherecipient(andanywiderpartnershipbeingfunded);• theeligibleactivitiesapprovedforfunding;• typesofeligibleexpenditure(andanythingelsewhichisineligible);• themaximumamountofgranttowhichtherecipientwillbeentitled;• thenatureofthegrant(capital,revenue);• therateofgrantsupportandthemaximumeligibleprojectcost(ifgrantislessthan100%);• theperiodofthegrant,showingtheprojectstartandenddatesandthelastdateforclaims;• theoutputstobedelivered,showingmilestonesandthefinaltargets;• thetermsandconditionsandanyotherguidance;and• aclaimform(andanyout-turnstatement).Thelettershouldincludearequirementfortherecipienttoreturnaformalletterof‘acceptance’.‘Offerletters’canalsobereferredtoas‘fundingagreements’.
ThePanel ThePublicSectorSpecialReportsofAccountantsPanelsetupbytheAuditandAssuranceFacultyoftheICAEW.
Payment(ofgrant)
Paymentstoorganisationswillnormallybemadeonthebasisofclaimformssubmittedbythegrantrecipient.However,grantstoindividualsarenormallymadeinfulloncetheapplicationisacceptedbythegrant-payingbody(althoughthetermsandconditionswillsetoutcircumstancesinwhichallorpartofthegrantcanberecovered).Paymentofgrantisconditionaloncompliancewiththetermsandconditionsandonsatisfactoryprogressbeingmadeagainstmilestonestowardstheendobjectivesandtargets.
Propriety LinkedtoRegularity.ProprietyistheconceptthatpatternsofresourceconsumptionshouldrespectParliament’sintentions,conventionsandcontrolprocedures,includinganylaiddownbythePAC.Itisconcernedwithstandardsofconduct,behaviourandcorporategovernance.Itincludesmatterssuchasfairness,integrity,theavoidanceofpersonalprofitfrompublicbusiness,even-handednessintheappointmentofstaff,opencompetitioninthelettingofcontractsandtheavoidanceofwasteandextravagance.
Terms Meaning
46 Frameworkdocumentforaccountants’reportsongrantclaims
Publicsector Forthepurposeofthisguidanceonly,thepublicsectorisdefinedas:• governmentdepartmentsandtheirexecutiveagencies;• theNationalAssemblyforWalesandtheirsponsoredbodies;• tradingfunds;• bodiesnotadministeredasgovernmentdepartmentsbutwhicharesubjecttoministerialand
departmentalcontrol,forexampleNDPBs;• localauthoritiesandotherlocalgovernmentbodies;and• NHSbodies.Thisdefinitiondoesnotincludepubliccorporations(exceptwheretheyareNDPBs)orthenationalisedindustries.ThefirstfourpartsofthedefinitionarecollectivelyreferredtoasCentralGovernment.Additionally,itappliestobodiesthatreceivegovernmentgrantsforspecificpurposesalthoughtheyarenotpublicsectorbodies:• charities;• highereducationinstitutions;and• furthereducationcolleges.
Regularity Linkedtopropriety,regularityistheconceptthatresourceconsumptionshouldaccordwiththerelevantlegislation,therelevantdelegatedauthorityandtherequirementssetdownbyHMTreasuryinManaging Public Money.
Retention(ofgrant)
Grant-payingbodiesmaychoosetoprotecttheirpositionbyholdingbackasmallproportionofthegrantwhichthegrantrecipientwouldotherwisebeentitledto.Theretentionisthenreleaseduponfinalcompletionoftheprojectifalliswelland,whereanaccountant’sreportisrequired,withthelikelihoodthattheremaininggrantwillonlybepaidifthereportisreceivedwithoutanyqualification.
Specialreports Inthecontextofthisguidance,thesearespecificreportsprovidedbyanaccountanttograntrecipientsand/orotherpartiesinrelationtoworkperformedongrantclaimsorreturns.Theworkcarriedoutunderthesespecialreportsisunderaseparatearrangement.
Sponsoringbodies
Thesearethebodiesthatprovidetheinitialallocationoffundingtoagrant-payingbodytodistributethefundstograntrecipients.
Statutoryarrangements
Somereportstopublicsectorbodiesareputinplacethroughrequirementsoflegislation.
Termsandconditions
Issuedwiththeofferletter(orcontainedwithinit),thesesetoutwhatthepayingbodyrequirestherecipienttodoinreturnforfunding.Thetermsandconditionsneedtobespecifictothegrantbeingawarded.
Unhypothecated Grantfundingprovidedforageneralpurposeandwithnospecificconditionsattached,suchas(i)annualRevenueSupportGrantfromcentraltolocalgovernment;or(ii)annualgrant-in-aidprovidedtoaNon-DepartmentalPublicBody.
Virement Atransferofthegrantofferfromoneactivity(orexpendituretype)toanother,givingthegrant-payingbodyandtherecipientflexibilitytodealwithoverandunderspends.Asvirementswillamendthefiguressetoutintheofferletter,theywillnormallybeagreedinwritingbybothpartiesthoughthetermsandconditionsmayallowsmallvirements(sayupto10%ofthegrantawarded)tobemadebytherecipient‘asofright’solongasthechangeisnotifiedtothegrant-payingbody.
47Frameworkdocumentforaccountants’reportsongrantclaims
Audit 01/01, Reporting to Third Parties,ICAEW,2001
Audit 03/03, Public Sector Special Reporting Engagements – Grant Claims,ICAEW,2003
AAF 04/06, Assurance Engagements: Management of Risk and Liability,ICAEW,2006
Code of Practice on Guidance on Regulation,BetterRegulationExecutive,DepartmentforBusiness,
InnovationsandSkills,October2009
Intelligent Monitoring,NationalAuditOffice,June2009
Managing Public Money,HMTreasury,2009
Managing Welsh Public Money,WelshAssemblyGovernment,2009
Principles of Proportionate Monitoring and Reporting,theOfficeoftheThirdSectoroftheCabinet
Office,June2009
The Compact,TheCompactPartnership,December2009
Turning the Tables in England,TheOfficeoftheThirdSectorandtheNewPhilanthropyCapital,
September2008
BIBLIOGRAPHY
48 Frameworkdocumentforaccountants’reportsongrantclaims
TheAuditandAssuranceFacultyoftheICAEWwouldliketothankthefollowingmembersofthePublicSectorSpecialReportsofAccountantsPanelandStakeholderForumfortheirinvolvementintheworkofthefacultyandinparticularfortheirparticipationinmeetings,contributingtodiscussionsandreviewingvariousdraftsoftheframeworkdocument:
PUBLICSECTORSPECIALREPORTSOFACCOUNTANTSPANEL
JohnChastney(Chair) IndependentTimBridle AuditScotlandStevenCain CIPFABrianCollins AuditCommissionMelanieCrooks RSMBentleyJennison(nowRSMTenon)NickDavies WalesAuditOfficeAnne-MarieLavigne ChairofFEESubCommitteeonCertificationofGrantsPhilipLenton DeloitteLLPPaulineMcGee BDOLLPKellyRosevear PricewaterhouseCoopersLLPCarolSayce KPMGLLPNeilSayers NationalAuditOfficePaulSpinks GrantThorntonLLPMikeUsher WalesAuditOfficeDavidWard KPMGLLP
PUBLICSECTORSPECIALREPORTSSTAKEHOLDERFORUM
MikeUsher(Chair) WalesAuditOfficeAndrewBaigent NationalAuditOfficeAdrianByrne PricewaterhouseCoopersLLPJohnChastney IndependentRuthElliot DepartmentforWorkandPensionsKarenEverett BournemouthUniversitySueGamble HMTreasuryBrianGray EuropeanCommissionSuzannaOrr HomeOfficeGavinPaterson AuditCommissionNickPayne DepartmentforBusinessInnovationandSkillsNickSharman HighwaysAgencyPhilippeTaverne EuropeanCommissionDavidThomson DepartmentofFinanceandPersonnelNorthernIrelandKerryTwyman ScottishGovernmentJimWager DepartmentforCommunitiesandLocalGovernmentPhilWinrow EnvironmentAgency
ACKNOWLEDGEMENTS
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