Assurance reporting framework

Audit and Assurance Faculty (AAF) of the Institute of Chartered Accountants in England and Wales (ICAEW) issues good practice guidance  for performing assurance engagements on various aspects of operations provided by external organisations. (The guidance does not constitute auditing or assurance standards and requires professional judgement to be used in its application, and where appropriate, professional legal assistance should be sought.)

In our consultation response - Changes to our Trustee Register (PDF) - on proposed changes to the processes for making appointments to the Independent Trustee Register maintained by the regulator, we indicated that we would be adopting an assurance and reporting framework for the purposes of the assessment of the ‘sound administrative and accounting procedures’.

We have now developed this framework with ICAEW. Once adopted, the regulator will require an unmodified report submitted by the applicant to be on the Trustee Register, upon application and on an annual basis. This will be as part of the regulator’s process to check that this legal condition is satisfied.

The proposed framework has been developed for use by those trustees who wish to be on the Trustee Register. These will be trustees who provide pension trustee services by way of business.

However, we consider that the framework will be relevant and useful to those trustees who provide these services but who do not wish to be on the Trustee Register. We would encourage – as good practice – those trustees to voluntarily adopt the AAF framework and to be able to demonstrate that they operate ‘sound administrative and accounting procedures’. Not all of the control objectives will be directly applicable in this circumstance and limited applicability is explained further in ICAEW’s Pension Trustee Supplement .

These guidelines are intended for those trustees who wish to be on our Trustee Register. However, because the framework can be applied widely, we refer to both categories of trustees (ie those who wish to be on our Trustee Register and the other trustees) as ‘Pension Trustees’. The ICAEW do likewise in their supplementary document (see below).

The ICAEW has published the supplementary document to AAF02/07 – ‘Assurance Reporting on Pension Trustees’ (the Supplement) as an exposure draft that is accompanied by a discussion document.

These guidelines for Pension Trustees will be updated once the period of the exposure draft has been concluded.

The Supplement outlines those control objectives which the Pension Trustee must fulfil in order to demonstrate that they ‘operate sound administrative and accounting procedures’. The control objectives included in the Supplement relate to their own business operations for providing pension trustee services and not in relation to a specific aspect of administrative and accounting procedures that impact an individual pension scheme.

ICAEW has produce some generic guidance for professional accountants in relation to AAF 02/07 engagements and preparers of these reports may also find this material useful.

Pension Trustees must evaluate their control procedures, by reference to the principles and control objectives outlined in Appendix 1 of the Supplement. As noted above, these will be in relation to their own business operations.

The regulator starts from the position that Pension Trustees should be able to demonstrate compliance with all the relevant control objectives, subject to our comments below.

The Supplement makes clear that not all of the Pension Trustee’s business activities need be considered when evaluating whether their control procedures meet the relevant control objectives.

The Pension Trustee should be able and prepared to demonstrate to the professional accountant why their control procedures are reasonable and proportionate. Particular considerations should be given in relation to:

• the extent of its pension trustee service and the size of its overall business operations; and
• where it considers that full implementation has not been possible given the nature of its appointments and it is not possible to assess operational effectiveness.

Situations may arise where a control objective has limited applicability to a Pension Trustee, for example because of the status and size of the Pension Trustee’s own business operations or nature of the trustee appointment. These cases may arise where:

• the trustee is a sole practitioner; or
• the trustee is appointed to a trustee body alongside a number of other trustees (where the trustee has no other appointed co-trustees we refer to this trustee as a sole trustee).

Application of control objectives where the trustee is a sole practitioner

The Pensions Regulator considers that sole practitioner Pension Trustees should be able to comply with all of the relevant control principles. However, we recognise that this may well involve the sole practitioner Pension Trustee working with other trustees to put in place mutual support and review structures to ensure compliance.

Control objectives that require such structures will ordinarily include, but not limited to 2, 3, 5, 14, 18 of the Appendix I of the Supplement. All these control objectives are relevant when an assurance report is obtained for the purpose of applying to be on the Trustee Register.

Application of control objectives to the Pension Trustee who is not a sole trustee

The application of certain control objectives for appointments (other than sole appointments) will sometimes be constrained by the constitution of the trustee body. The regulator recognises that a Pension Trustee will not always be able to demonstrate design suitability and/or operational effectiveness for certain control objectives in these circumstances.

For these types of appointments, if the other trustees on these trustee bodies have decided not to adopt the Pension Trustee’s control procedures (for the administration of their scheme), then we appreciate that it will not be possible to determine its applicability. Where this is the case, then we may accept that the application of these control objectives for these types of appointments may not be capable of scrutiny by the practitioner but will want to discuss further with the Pension Trustee.

We consider that the control objectives that may fall within this category are 8, 9, 10, 12, 16 and 18 of the Appendix I of the Supplement.

Limited applicability and further discussion with the regulator

Where a Pension Trustee (who wishes to be on the Trustee Register) considers that there is limited applicability of certain control objectives, we will want to discuss this view with the Pension Trustee and will expect the Pension Trustee to:

• have suitably designed and effectively operated and described the control procedures required to fulfil the control objective where possible; and
• explain what other control procedures or actions are in place to meet the principle where certain control objectives are absent and therefore alternative control objectives are developed.

Voluntary adoption

In cases where the framework is adopted by Pension Trustees as a matter of good practice, there may be limitations over the applicability of certain control objectives or they may be short of full adoption of control objectives. Pension Trustees may wish to highlight in their report that the application of control objectives is limited.