31 March 2020

What is the issue here?

When a casual reader reads an audit report they expect to see a phrase that says something like “true and fair” or the more recent “fairly presented”. These are the words that indicate a “clean” report – so no need to read all the other boring detail!

The problem is – what about if those words are missing? What if the report just says “In our opinion, the accompanying financial statements of Client X Limited for the year ended xxxxx are prepared, in all material respects in accordance with the accounting policies stated in Note X,” [or whatever might be appropriate] And that’s it? Nothing about true and fair or fairly presented?

The wording above is what we are required to use in terms of ISA (NZ) 800 (revised) Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks if we are auditing certain kinds of financial statements. For example Illustration 2 from that standard:


If auditing financial statements that are not prepared in terms of a fair presentation framework we cannot use any other phrases apart from “…prepared, in all material respects, in accordance with (or in terms of) …”. This is a “compliance framework” as opposed to “fair presentation” framework.

Does this apply to all special purpose reporting?

This is where the confusion arises. Special purpose reporting is likely to be compliance framework rather than fair presentation framework, but this is not always the case. 

ISA (NZ) 800 (6(b) says:


In addition, Paragraphs A2 and A3 of ISA (NZ) 800 state that it is possible for a special purpose framework set by an “authorised or recognised standards setting organisation” to be a fair presentation framework. 

What about the common special purpose frameworks?

The (surprisingly) popular “A Special Purpose Financial Reporting Framework for use by For-Profit Entities” (SPFR for FPEs) issued by CAANZ is an example of special purpose that is a fair presentation framework. This is explicitly stated in paragraph 1.12:


Similarly the Public Benefit Entity Simple Format Reporting – Accrual (not-for-profit)SFR – A (NFP)standard (Tier 3 PBE) is also “fair presentation” (A10):


Note however Public Benefit Entity Simple Format Reporting – Cash (Not-For-Profit) (PBE SFR-C (NFP)) is not a fair presentation framework.

What happens when strict application of the fair presentation framework doesn’t make sense?

As noted above fair presentation is not achieved automatically by sticking rigorously to the standard, but must also meet the goals of relevance, reliability, comparability and understandability. 

The SPFR for FPEs framework issues a caveat along the same lines when it says (paragraph 1.13):


So some rare cases may warrant a departure from the letter of the framework to achieve fair presentation. In these cases we need to have to look at the disclosures and make sure that:

  • management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows,
  • management has complied with applicable standards and interpretations, except that it has departed from a particular requirement to achieve a fair presentation,
  • the title of the standard or interpretation from which the entity has departed, the nature of the departure, including the treatment that the framework would require,
  • the reason why that treatment would be misleading, and the treatment adopted; and
  • for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

Speaking of jobs prepared in terms of IFRS, NZ IAS 1 summarises this neatly:


How do we approach this in Audit Assistant?

Our audit reports are treated as follows:

  • Tier 1 and 2 and Tier 3 PBE jobs are treated by default as fair presentation 
  • Tier 4 PBE jobs are treated as compliance by default.
  • In the SPFR for PBE jobs (including Body Corp jobs) there are two options – straight SPFR for PBE audit reports are fair presentation by default and the “generic special purpose” option is compliance by default.
  • SPFR for NFPs defaults to compliance.
  • NOTE: make sure you are using the 2016 update versions of these jobs if there is an option as these contain the current style audit reports – change to these versions if not.


  • Special purpose reporting may or may not be “fair presentation”.
  • SPFR for FPEs and Tier 3 PBE reporting may be regarded as “fair presentation”.
  • Other special purpose will generally not be “fair presentation” but instead be treated as “compliance” frameworks.
  • In these cases we can only report that they comply with the special purpose framework and need to reference what that framework is (as per contract, as per legislation, or as presented in the notes to the financial statements).
  • We cannot add any other other phrases in beyond this that hint at anything beyond compliance with the framework.
  • Even if financial reports prepared in terms of fair presentation frameworks meet the strict criteria, we must also ensure that they meet the goals of relevance, reliability, comparability and understandability – which in some rare cases may warrant a departure from the letter of the framework.
  • The default audit reports in Audit Assistant should always be regarded as starting point only – use your professional judgement in each case and amend if required

(Thanks to Zowie Pateman of CAANZ and Dawn Alexander of PKF Goldsmith Fox for their helpful input on this subject.)


What is EER?

The IAASB says:

…EER refers to emerging forms of external reporting by entities that increasingly provide non-financial information that goes beyond the traditional (financial statement) focus on the entity’s financial position, financial performance and impact on its financial resources.

More and more entities are broadening out on what they report in their annual reports. The Statement of Service Performance is the obvious example of this trend. Examples also include sustainability reporting, integrated reporting, corporate social responsibility and environmental social and governance disclosures.

Why EER?

Again the IAASB says:

There is an increasing awareness that the future prospects of an entity are impacted by a wider range of factors than those presented in the financial statements, and of the close linkage between wider value creation and the ability of an entity to sustain its operations in the future. Information about these matters is increasingly addressed in EER reporting frameworks, such as those relating to integrated reports and sustainability reports.

These entities want to tell their story that goes beyond the numbers. In a world that increasingly looks to other measures of value and success than a return to shareholders (or GDP at a national level) this kind of reporting can only become more prevalent.

This doesn’t just relate to entities with a charitable or social purpose either. Entities that have been perhaps been perceived as part of ethically or environmentally questionable industries are increasingly keen to show they are “cleaning up their act” and acting in ethical and sustainable ways.

For instance the NZ fertilizer company Ravensdown have their own integrated reporting website (see screenshot above) where they cover every possible indicator of the effectiveness and effect of their operation including their company values, fraud policy, governance structure, how they define and create value (a very broad “six capitals” type analysis), injury frequency rate, their carbon footprint, the fact they pay their staff above the living wage, and much more.

What does this mean for auditors?

These entities want the public to be able to rely on this information, so while not many examples are required to be audited (yet), the demand is growing, and this represents something we auditors should be prepared for (e.g. from 1 January 2021, Tier 1 and Tier 2 charities will need to include non-financial information alongside the financial statements they file with Charities Services). In fact it represents a huge opportunity.

At present this kind of reporting is mostly being carried out by listed entities and large private companies, and at this point only about 25% are seeking assurance (per Craig Fisher and Misha Pieters – presentation at 2018 CAANZ Audit Conference). But as the public move beyond the “Gee whizz that’s cool” stage into asking questions about whether this is not just “greenwashing” there will inevitably be a move to seek more assurance on these reports.

Looking at the Ravensdown integrated reporting website there is no indication of any assurance work being done on this. Their 2018 annual report (audited by KPMG) only covers the traditional areas. There are no Statement of Service Performance or other integrated reporting components included in the annual report or audit work. This is likely to change going forward.

Interestingly in the audit report for Ravensdown KPMG state that “Our firm has also provided other services to the group in relation to advisory services in respect of Integrated Reporting.”

So there is an obvious opening for auditors to help prepare their clients for integrated reporting in the future, addressing questions like:

  • How can we create a clear path towards reporting on and auditing SSP information when it is required for other entities?
  • What other types of reporting are actually realistic for us to audit?
  • What external experts might we need to find to help us do this work?
  • What systems can we help our clients put in place now to enable us to audit this information in future?
  • What standards might our clients use that we need to be aware of and familiar with and can we guide them in these choices?

What is Audit Assistant doing to help prepare for this?

Statements of Service Performance are the first obvious report requiring audit. These are already required for Tier 3 and 4 PBE entities (although some firms are opting out of including these in the audit report if the entities are under the threshold for audit or review). We already have testing in terms of EG Au9, and this will be updated when the new standard (NZ AS 1) is released (effective for periods beginning on or after 1 January 2021).

For Tier 1 and 2 entities, we will be adding the option for the audit of SSP in due course.

In terms of other kinds of reporting, there are a multitude of frameworks, so we will be responding with templates based on user need. For instance, the Sustainability Accounting Standards Board has 77 industry-specific standards are available for download. The Global Reporting Initiative (GRI) has six economic standards, eight environmental standards, and nineteen social standards.

This poses a number of challenges and presents an array of new opportunities for auditors. So we could all have a lot of work ahead of us!

(Graphic above and many ideas are from a presentation at the 2018 Audit Conference in Auckland by Craig Fisher (RSM) and Misha Pieters (XRB).)

Just the facts!

As the name suggests, Agreed Upon Procedures (AUP) engagements are a type of assurance engagement that focusses on factual findings, and as such is probably the simplest form of assurance.

The practitioner is asked to verify a question of fact, and their work simply answers that question. 

The International Federation of Accountants (IFAC) notes that

…the objective of an AUP engagement is to carry out procedures of an audit nature to which the practitioner, the entity, and any appropriate third parties have agreed and to report on factual findings. These engagements may entail the practitioner performing certain procedures concerning individual items of financial data (for example, accounts payable, accounts receivable, purchases from related parties, and sales and profits of a segment of an entity), a financial statement (for example, a balance sheet) or even a complete set of financial statements. 

Covering specific parts of financial statements or specific transactions makes sense. But there is more:

While directed toward engagements regarding financial information, ISRS 4400 [the international AUP standard] may provide useful guidance for engagements regarding non-financial information, provided the auditor has adequate knowledge of the subject matter in question and reasonable criteria exist on which to base their findings.

In practice, AUP engagements are especially useful to verify to funders that their money has been spent as specified – for much less cost and effort than an Audit or Review Engagement.

Other examples might be:

  • Due diligence when buying or selling a business
  • Verifying cash balances
  • Checking security balances
  • Income tax provisions
  • Accounts receivable/payable processes
  • Special reviews of loan portfolios
  • Reviews of internal control and environmental management systems
  • Royalty agreements compliance
  • Employer compliance/payroll audits
  • Purchasing department compliance

What does the work involve?

Factual findings exclude all concepts of risk assessment, materiality, expressing an opinion and extended testing, so they are radically different from risk-based auditing.

So the practitioner must take their auditor hat and stop evaluating risk and materiality, and instead just concentrate on doing what was agreed to in the engagement letter – nothing more and nothing less.

The The Institute of Chartered Accountants in England and Wales (ICAEW) says that: 

The procedures and tests should be sufficiently detailed so as to be clear and unambiguous, and discussed and agreed in advance with the engaging parties so that the factual findings are useful to them and, depending upon the engagement, others to whom the report is made available. The practitioner’s report does not express a conclusion, and therefore it is not an assurance engagement in the technical sense.

Critically, a large part of the planning work is to determine who the users are. This is likely to be either the engaging entity, this entity plus a third party (for instance the funding suppliers), or the entity plus a regulator or representative of a group of users. These users must be identified and addressed in the engagement letter and the final report. The report is specifically restricted to these users.

Why would we use these?

AUP engagements have the potential to be much more focussed than audit or compliance assurance work. And therefore more economical for the client and profitable for the assurance practitioner. The client is assured that they are getting exactly what they ask for and no more.

AUP engagements have the potential to be an attractive and fast growing service offering to SMEs. Clients may not need an audit, but may greatly benefit from an AUP engagement to satisfy banking or vendor needs. (IFAC)

Audit Assistant includes templates using both the NZ and Australian standards for Agreed Upon Procedures. Australian firms use ASRS 4400. NZ practitioners base their AUP work on APS-1 (revised) – Agreed-Upon Procedures Engagements to Report Factual Findings issued by the NZICA (based on the Australian standard).

They may be used with respect to financial information and may be adapted to cover engagements involving non-financial information reporting on the factual findings resulting from those procedures that have been performed.

There are further options: one where the AUP is likely to be an annual job, and the other where is it is a one-off job. In the second case the date entered on setup is the “appointment date” rather than “year ending”.

Our templates include an engagement letter, report, and a range of confirmation letters and work-papers to fit many common agreed-upon procedures. An AUP report expresses the procedures and the practitioner’s findings. For example:


Contact us for more details.