This helpsheet has been issued by ICAEW’s Technical Advisory Service to highlight the factors ICAEW members need to consider before using electronic signatures to sign reports and documents such as an auditor’s report and financial statements. This helpsheet is intended to provide practical help and does not constitute legal advice. If no doubt, members are advised to seek legal advice.

Members may also wish to refer to the following related guidance:

• Law Society note – Our position on the use of virtual execution and e-signature during the coronavirus (COVID-19) pandemic
• Law Society practice note – Execution of a document using an electronic signature – although this relates to commercial contracts it does contain some useful information
• Coronavirus (COVID-19) – An introduction to using electronic signatures to sign an audit report
• Audit and Assurance Faculty Guide: Using an electronic signature to sign an audit report

Wet ink signatures are no longer required in most cases as confirmed by the Law Commission’s September 2019 report: Electronic execution of documents.

The Law Commission’s report also confirmed that EU law (Electronic Identification and Trust Services (eIDAS) Regulation), UK legislation (The Electronic Communications Act 2000) and case law, all allowed for the use of electronic signatures to execute documents, including where there is a statutory requirement for a signature, provided that the signatory intends to authenticate the document (see below for an explanation of what this means in practice).

If an entity’s constitutional documents do not specify how the financial statements or any other stipulated documents must be signed, electronic signatures are presumed to be valid, unless the contrary can be proven.

Whether it is appropriate to use an electronic signature must be decided on a case by base and will depend on any relevant legislation, applicable regulatory requirements and the type of document being signed or executed.

Members are advised that before using electronic signatures they should ensure that there are sufficient controls in place (see below).

The Ministry of Justice proposed on 3 March 2020 that a working group should be set up to provide greater clarity on issues such as security and the use of technology (such as video witnessing of electronic signatures) and an assessment of potentially adverse impacts, particularly on vulnerable people.

Are there some situations an electronic signature cannot be used, even if there is a clear intention to authenticate it by the signatories?

Yes. The following are some examples where electronic signatures are not permitted under any circumstances:

• The execution of wills under the Wills Act 1873 – an electronic signature cannot be used.
• If the law expressly provides that a signature must be in ink or handwritten.
• Documents which must be presented to a notary and sent overseas.
• Some overseas jurisdictions do not allow electronic signatures and so members must follow the regulatory requirements applicable in the relevant jurisdiction.
• Deeds – these require the physical presence of the witness when they are signed.
• HM Land Registry has its own rules in relation to electronic signatures.
• Not all documents bearing an electronic signature are admissible for registration at Companies House.

An electronic signature is electronic data, logically associated with other electronic data, used by a signatory to sign a document. Electronic signatures are most commonly divided into three levels based on their sophistication – simple, advanced and qualified:

• Simple - an individual types or draws their name on a computer or mobile device or uploads an image of their signature onto a computer or mobile device
• Advanced – the signature is created using software with the ability to identify the signatory
• Qualified – uses a certain device and comes with a certificate designed to guarantee authenticity

Members are advised to discuss with the software provider the type of electronic signature being provided and the security afforded.

Electronic signatures should not be confused with digital signatures. The latter are a cryptographic mechanism and are most commonly used for the filing of documents with a regulator or tax authority, although many official bodies do not accept either.

It is worth remembering that ‘approval’ is not the same as signing. An email from a client confirming that they, the client, has ‘approved’ the financial statements for example simply means they are happy with them. They still need to sign them in some way.

What is meant by ‘intention to authenticate’?

The Law Commission noted in 2001 that, in order for courts to determine whether or not there is an ‘intention to authenticate’, they should apply the following objective test:

Would the conduct of the signatory indicate an authenticating intention to a reasonable person?

The courts will use the same test for authenticity of electronic signatures as for wet ink signatures. Some electronic signatures provide better evidence of the intention to authenticate the document than others. For example, ‘Advanced Electronic Signatures’ and ‘Qualified Electronic Signatures’ have digital audit trails and only the named individual is able to use them. Members are advised to speak to their software provider to find out more about the digital audit trail and security of the product.

The following is an outline of various scenarios to illustrate when an electronic signature is legally valid and when it is not. This is not a complete list and members are advised to seek legal advice if in doubt.

Audit reports

• For companies, the Companies Act 2006 states that the auditor’s report must be ‘signed’ but, as it has not been updated to keep pace with technological developments, electronic signatures are not referred to in the legislation.
• For unincorporated charities, The Charities (Accounts and Reports) Regulations 2008 state only that the auditor’s report must be ‘signed’ – again, electronic signatures are not referred to in the regulations.
• For Limited Liability Partnerships, again The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 do not refer to electronic signatures, they just require the audit report to be ‘signed’.
• For co-operative societies and community benefit societies, the Co-Operative and Community Benefit Societies Act 2014 does not refer to the audit report needing to be signed, stating only that ‘the auditors must make a report to the society’.

As electronic signatures are not referred to in the relevant legislation, this does allow for interpretation of the term ‘signature’. Where there is a statutory requirement for a signature, but the form of the signature is not stipulated, UK law has generally recognised the validity of a wide variety of electronic signatures.

ICAEW’s Quality Assurance Department and the FRC have confirmed that, from their perspective, they do not see any reason why firms cannot use electronic signatures on audit reports provided provisions are put in place so that electronic signatures are made under the same provisions set out in European Law. Furthermore, those signing audit reports must meet the requirements of ISA (UK) 700, including section A64-11 which states that, for UK companies, no-one else other than the senior statutory auditor can sign the auditor’s report.

Further information can be found in Coronavirus (COVID-19) – An introduction to using electronic signatures to sign an audit report.

Annual reports including financial statements, directors’ reports, trustees’ reports, strategic reports

Unless an entity’s constitutional documents specify how the relevant sections within an annual report must be signed, electronic signatures are presumed to be valid, unless the contrary can be proven.

Contracts

The Law Society practice note: Execution of a document using an electronic signature confirms that unless there is a statutory or regulatory requirement a contract does not have to be in any particular form provided it meets the conditions of a valid contract (i.e. offer and acceptance, consideration, certainty of terms and an intention to be legally bound.) This means a simple contract may be concluded using an electronic signature.

Engagement letters

As an engagement letter is essentially a contract between two parties, there is no reason why it cannot be signed electronically. As with any document signed electronically, members should ensure that the person signing it has the appropriate authority to sign it on behalf of the client and that there is evidence that they ‘intended to authenticate it’.

ICAEW’s TECH 09/15 BL Managing the Professional liability of Accountants has some useful information on forming contracts (including engagement letters) electronically. Members may also want to refer to the helpsheet on Engagement letters and privacy notices.

Letters of Representation

A letter of representation can be signed electronically, but care should be taken to ensure that whoever signs it electronically does have the relevant authority and that by signing it electronically they did intend to authenticate it.

Legal documents

UK legislators and regulators may specify their own requirements regarding signatures. Members are advised to always check first with a regulator before submitting to them a document signed electronically.

Filing of Financial Statements with Companies House

1. Audit report
   The auditor’s signature is not required on the auditor’s report filed with Companies House (or the Charity Commission for that matter). However, for Companies House filings, the name of the auditor (or in the case of a firm, the senior statutory auditor and the firm) must be printed clearly on the auditor’s report.
2. Balance sheet, directors’ report and other parts of the financial statements
   For further information on the signing of other parts of the financial statements for the purposes of filing financial statements at Companies House, see Which documents in the annual accounts need a signature?.

Independent Examination Reports

The Charity Commission Independent examination of a charity’s accounts: examiners (CC32) guidance states only that an independent examination report must be ‘signed’ and does not specify the form of such signatures. Therefore, electronic signatures are presumed to be valid unless the contrary can be proved.

For any other independent examinations, members are advised to check the relevant legislation, the requirements of any applicable regulator and the entity’s governing documents.

Minutes and resolutions

1. Companies incorporated under the Companies Act 2006:
   a. If an electronic signature is used to sign the minutes of a directors’ meeting or a members’ written resolution, then it will have been sufficiently authenticated for the purposes of section 1146 of the Companies Act 2006 if:
   - it is sent or supplied in hard copy form by or on behalf of the person who signed it, or
   - it is sent or supplied in electronic form, provided that the identity of the sender is confirmed in a manner specified by the company or (where no such manner has been specified by the company) if the communication contains or is accompanied by a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.
   
   b. If the minutes of the proceedings of a general meeting are signed by the chairman using an electronic signature, they will constitute evidence of the proceedings of that meeting.
   
   c. If a record of a resolution passed otherwise than at a general meeting is signed by a director or the company secretary using an electronic signature constitutes evidence of the passing of that resolution in accordance with section 356(2) of the Companies Act 2006.
2. A company that has adopted the Companies Act 2006 Model Articles for private companies limited by shares, the Companies Act 2006 Model Articles for public companies limited by shares or the Companies Act 1985 Table A articles.
   
   The directors may take a decision or pass a directors’ written resolution (as applicable) under those articles by the relevant directors signing a resolution using an electronic signature.
3. Other entities
   
   Before using an electronic signature to sign minutes or resolutions, members are advised to check the entity’s governing documents and any applicable legislation.

Accountants Reports

For detailed information on the requirements for signing accountants’ reports, members are advised to consult the following ICAEW technical releases – where signatures are required, electronic signatures would be permissible providing there is intention to authenticate as discussed above:

• TECH 07/16 AAF Chartered Accountants’ Reports on the Compilation of Financial Information of Incorporated Entities
• TECH 08/16 AAF Chartered Accountants’ Reports on Historical Financial Information of Unincorporated Entities

Assuming the use of electronic signatures is permissible, there are a number of practical considerations to resolve before deciding to go ahead with an electronic signature. These will vary with the risk appetite, security needs, cost implications, timetable and filing deadlines of both the member or the firm and their client but include:

• The type of electronic signature that is most appropriate, for example Simple, Advanced or Qualified Electronic Signatures
• What is acceptable to the regulator
• Availability of software
• Attitude of the ICAEW member /member firm’s insurers
• Ability of the client to use electronic signatures
• Whether the entity’s constitution prohibits the use of electronic signatures
• Whether the condition ‘intention to authenticate’ can be met (see above).

What internal controls should members consider when using electronic signatures?

The following is a brief list of issues a member or member firm may wish to consider before agreeing to use an electronic signature, to ensure such signatures are secure and valid:

• Has the ‘intention to authenticate’ been evidenced to create a robust audit trail? For example, the email to the client attaching the signed report or document should make it clear or confirm that it has been signed using an electronic signature.
• Internal controls should be updated when adopting electronic signatures for the first time. This should cover controls over access and the risk of fraud or error.
• As with ‘wet ink’ signing, the member should still check that the directors (or equivalent) who have signed the relevant document were/are entitled to do so.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat.