Master trust financial statements must undergo a statutory external audit in line with international standards on auditing and applicable laws. This supports a true and fair view of the financial transactions, and of the amount and disposition of its assets and liabilities at the date of the report.
There is a legal requirement for master trusts to be authorised. To continue to meet the authorisation criteria set by The Pensions Regulator (TPR), master trusts must complete an annual supervisory return. A key component is that master trusts obtain independent assurance over governance procedures and arrangements, as well as relevant systems and processes using an AAF 05/20 service auditor report on the governance controls.
The Technical Release 05/20 AAF (assurance reporting on master trusts) was produced by the Institute of Chartered Accountants in England and Wales with representation from TPR. It provides guidance on the scope and performance of the assurance engagement.
Unlike internal and external audit restrictions, the firms carrying out these audit and assurance activities can be the same. Master trusts can use this to their advantage, as there are benefits to using a single firm.
The service auditor carries out procedures to issue a reasonable assurance report on the description, design and operating effectiveness of governance control activities that are related to control objectives set up by the trustees of the master trust.
In undertaking those procedures, there will be certain controls in the AAF 05/20 report that will be assessed for the suitability of design and operating effectiveness that are also in scope for the external auditor.
These control activities will be unique to each master trust so, for the purposes of this article, we've given some examples of areas that will be in scope for both audits:
Master trusts will see a range of benefits from using one firm to provide a streamlined service across both the external audit of financial statements and to deliver an opinion on AAF 05/20 reports. Here are four areas that may bring potential savings.
Communication between the master trust and the auditor will be more efficient and less time-consuming where one firm of auditors is used.
For those scope areas that are included in both audits, the relevant control owners across the master trust will only have to explain how the control works once, rather than twice, and respond to questions from one audit firm.
Our approach, for example, would be to test once and use twice in each audit. This results in significant time savings for control owners in the master trust, as evidence and samples will only need to be provided once rather than twice.
The single audit firm will have a greater opportunity to provide recommendations to improve controls given that the one firm will have a greater insight into the operations of the master trust.
Taking a proactive approach to understanding the audit process and controls assurance reporting is critical to ensuring firms meet best practice. By using a single firm, organisations can ensure they are presenting a fair view of their financial transactions, and ensure the information is accurate and up to date. In turn, the process can be streamlined and less time-consuming, allowing for an effective audit process.
For more insight and guidance, contact Lauren Carlyle or Stephen Leckie.
