Financial Reporting - Public sector grants - Guidance for the grants

John Chastney, a partner at Mazars and chairman of Public Sector Special Reports of Accountants Panel.
maze. Public sector bodies giving out grants often require an accountant's report. New guidance aims to clarify the basis of these reports, says John Chastney.

Many organisations receive substantial sums in grants for specific projects from grant-paying public sector bodies. Each grant is often accompanied by a requirement set by the grant-paying body to obtain a separate accountant's report confirming that the organisation receiving the grant is eligible and/or that the grant has been spent on the purpose for which it was given.

The expectations of grant-paying bodies when requesting such reports have not always been clear. The approach to providing these reports to public sector bodies have been inconsistent both between and within firms of accountants. Increasingly grant-paying bodies required accountants to report to them in a certain way as a condition of the grant without clarifying their requests for specific wording. Accountants were providing reports in a pre-printed format without always carrying out the necessary work to justify the forms of opinion that they were providing. In addition, accountants were not always aware that they were also taking on a duty of care to the grant-paying bodies when undertaking these engagements.

The Audit and Assurance Faculty has therefore developed guidance after discussion and in consultation with a number of government departments, including HM Treasury. Technical Release, Audit 3/03, Public Sector Special Reporting Engagements - Grant Claims, details the principles that grant-paying bodies and accountants may want to consider when requesting and providing these reports. The principles within the guidance use the framework established by Technical Release Audit 1/01, Reporting to Third Parties, issued in September 2001. Both Technical releases are available from

The faculty feels that this guidance works in the best interests of accountants and government departments. Early implementation will help to make the process of reporting on grant claims to public sector bodies much simpler.

Bridging the expectations gap

The guidance highlights the need to bridge the gap between the grant- paying body's expectations and what it is that the accountant is actually able to provide. It alerts grant-paying bodies, grant recipients and accountants to the importance of tri-partite engagements, where the accountant is taking on a duty of care, not only to the grant recipient but also to the grant-paying body when providing a report. It also distinguishes between an agreed-upon procedures engagement, a high level assurance engagement and a moderate assurance engagement. Grant-paying bodies often want high levels of assurance: accountants favour agreed-upon procedures as this seeks to minimise risk by providing more clarity about the work to be carried out.

Considering assurance

Grant-paying bodies need to consider the level of assurance and the form of report that they require. They should consider whether everything on which they want a report is reasonable and capable of verification and will not result in undue cost to the grant recipient. In the past, accountants have taken on engagements where too great a proportion of the grant was used up in the accountants' fees reporting on the use of the grant funds.

Similarly, accountants need to consider whether they are able to provide the level of assurance and the requested form of report. Providing differing degrees of assurance for an accountant is not difficult: it is the very basis of these engagements. However, the higher the level of assurance required, the more detailed the testing. Accountants will be wary of any report that allows others to infer that there has been 100% testing.

Agreeing the form of words on the report is also a crucial factor and these should always reflect the scope and work that has been carried out and the subsequent findings. Sometimes the grant paying bodies are bound by legislation to use particular terminology.

Audit 3/03 provides a framework within which grant-paying bodies, grant recipients and accountants can enter into a dialogue so that all parties are clearer about the expectations and their respective responsibilities in the process of these special reporting engagements.

•   For more details, contact at the institute's Audit and Assurance Faculty.

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