Accountants’ reports are often an effective way for grant-paying bodies to gain comfort over how grant recipients have used their funding. However, not all accountants’ reports give the same level of assurance or involve the same level of work. It is essential to understand the differences in order to obtain the level of comfort required.

ICAEW recently led a workshop in partnership with the Cabinet Office’s Government Grants Management Function for grants leads across government. James Whitley, Head of Grants Policy, Standards and Oversight stressed the importance of understanding grant assurance options.

“Assurance of grant spend is an area in which the government seeks to continuously improve and the workshop provided an valuable opportunity for officials from across government to work with experts from ICAEW to define the problems that government grant makers encounter and identify solutions and support.” Whitley told ICAEW Insights. “The workshop was successful in identifying a roadmap for the development of a range of guidance and training products aimed at assisting government grant makers.”

There were three different types of accountants’ reports discussed in the workshop, what they cover, and some of their pros and cons for grant-paying bodies.

Reasonable assurance:

This is the most comprehensive of the three reports. The accountant provides a positive opinion, for example: “In our opinion, the grant claim schedule has been prepared, in all material respects, in line with the grant terms.” 

The accountant determines the exact procedures and sample sizes, which are dependent on materiality. The ‘reasonable’ refers to the fact that it does not provide absolute, 100% assurance. The reliance on the accountant’s judgment also means the same work completed will not be consistent across firms. The conclusion also does not inform readers about the exceptions identified and it is usually the most expensive type of report. 

Limited assurance:

This shares many features of reasonable assurance but involves a more limited scope of work. The accountant determines the exact procedures and sample sizes but the procedures tend to be less detailed than those required for a reasonable assurance engagement. The conclusion on the grant claim will be limited or negative: “Based on the work described in the report, nothing has come to our attention that causes us to believe that the grant claim schedule has not been prepared, in all material respects, in line with the grant terms”.

Like reasonable assurance, accountants may undertake further work if they find errors. It’s also generally cheaper than reasonable assurance. However, there is often an expectation gap as the negative opinion can be difficult to understand. 

Agreed upon procedures:

Unlike reasonable or limited assurance, agreed upon procedures is not actually a type of assurance. This is because no opinion is given on, for example, whether the grant return was prepared in line with the grant terms. Instead, the accountant performs a specific set of steps and produces a factual report on their results. Sample sizes are agreed in advance. The accountant does not undertake further work if they identify errors unless there is an explicit agreement for them to do so. 

A benefit is that the grant-paying body can create a consistent framework tailored to its particular needs. This can be helpful when requiring accountants’ reports on a large volume of grant payees – each accountant will perform the same, consistent procedures for each report, unlike with reasonable or limited assurance. 

More accountants are also willing to undertake this work, and it tends to be much cheaper than the other options. However, there is more of a time investment for grant-paying bodies as they need to decide themselves on the procedures required. 

What does ‘materiality’ mean in the context of an accountants’ report?

For all three types of reports, grant-paying bodies will need to consider what is “material” to them. Exceptions are “material” if they could reasonably be expected to influence relevant decisions of intended users of the report, either individually or collectively. This can be based on quantitative factors, such as monetary value, or qualitative factors, such as the type of expenditure. Bodies should consider the level of error they are prepared to accept – it cannot be solely up to the accountant. 

Materiality should also be proportionate to the size of and risk associated with the grants. For example, where the risk of misuse of funds is higher, the grant-paying body may set a lower materiality threshold. In contrast, for payments to a trusted grant recipient, for example where considerable due diligence was done before awarding the grant, the grant-paying body may find a higher materiality more appropriate. 

For reasonable and limited assurance, accountants will take into account both what the grant-paying body views, as well as apply their own professional judgement to set materiality for testing. In contrast, for an agreed upon procedures engagement, the accountant does not apply judgment and simply undertakes the requested testing.

When choosing which form of accountants’ report to use, a grant-paying body will want to ask themselves the following:

• What are your objectives?
• What are the conditions of the grant?
• What actions should be taken if accountants identify issues? Can funds be recovered?
• Is there something measurable that accountants can provide?
• Is the cost of an accountants’ report proportionate to the size and risk involved in the grant?
• What qualifications does the accountant need to sign off the report?
• Could the assurance be obtained another way such as through internal audit or the use of a specialist?

Other issues, such as liability and duty of care, are also worth considering. For those wishing to learn more about accountants’ reports for grants, ICAEW’s Audit and Assurance Faculty’s Technical Release AAF 01/10 provides detailed guidance. Further resources on assurance more generally may be found here.