A Custodian Announces an Audit: What Assurance It Actually Provides

A custodian publishes an assurance document. Whether it means much depends on details that press coverage almost never reaches.

Three engagements, three levels of assurance

An agreed-upon procedures engagement performs specific checks a client requested and reports the results, offering no opinion. An examination provides an opinion on a specific assertion. A financial statement audit gives an opinion on the whole picture and is the strongest — and least common in this sector.

Point-in-time is the central weakness

Most reserve attestations are snapshots. Assets present on the measurement date satisfy the check, whether or not they were borrowed for it. Without either surprise timing or continuous monitoring, a snapshot is compatible with a shortfall on every other day of the year.

The half that is usually missing

Demonstrating control of assets is the easy half. Demonstrating liabilities — what is owed to customers — is the hard half, because it depends on internal records the auditor must take from management. Techniques exist to let customers verify their own balance is included without revealing others’, and their absence is a meaningful omission rather than a technicality.

Questions worth asking

Who performed it, and are they independent? What exactly was in scope — assets only, or liabilities too? Was the date announced in advance? Is the full report public, or only a summary? And is it repeated on a schedule, or a one-off? A programme of surprise, liability-inclusive examinations is a substantively different claim from a single dated snapshot, though both are announced with the same word.