Perspektiver

Assurance on the remuneration report for 2020 

How and why it may be beneficial for you

Danish listed companies are starting to prepare for their remuneration reports for 2020 as required by the Danish Companies Act. Thus, auditors and advisors will also be busy assisting with and reading the companies’ remuneration report as part of their audit of the annual reports.

However, the auditors shall not provide any assurance that the report complies with the Danish Companies Act, nor that the data presented in the report have been prepared in accordance with the reporting practices described. The auditors are only obligated to conclude, whether they found any reason to point out any omissions in the remuneration report compared to the disclosure requirements.

According to Henrik Wellejus, Partner and Audit & Assurance Leader in Deloitte, Boards and shareholders could benefit from having the auditor read and assess the new remuneration reports.

“At Deloitte, we believe it will add value to boards and shareholders if the auditors provide limited assurance that the report complies with section 139b of the Danish Companies Act. And that the data presented in the report have been prepared in accordance with the reporting practice described and reconciles to underlying documentation.”

How do the auditors usually make their conclusions?

When the auditors will make their conclusions supporting the ‘minimum statutory statement’, their work will be based on a disclosure checklist. This is required by law, however provides no assurance.

If the remuneration report, a summary of it, or a link to the company’s website where the remuneration report can be found is included in the management commentary section of the annual report, then the auditors are required to perform a ‘consistency check’ based on the audit of the financial statements. This means that the auditors shall consider whether the information on remuneration in the management commentary is materially inconsistent with the financial statements or knowledge obtained in the audit or otherwise appears to be materially misstated.

If requested, the auditors can also conduct further work to support a conclusion that that nothing has come to the auditors’ attention causing them to believe that the remuneration report does not comply with section 139b of the Danish Companies Act, or that the data in the remuneration report have not been prepared in accordance with the reporting practice described. Then the auditors will provide a statement of compliance providing boards and shareholders with ‘limited assurance’. 

Martin Faarborg, Partner and Remuneration Committee Advisory Leader in Deloitte, finds that “limited assurance is a good, balanced and proper level of assurance to request from the auditors to ensure transparent, comparable and trustworty communication to the market.”

What options are there for assurance?

Audit of the numbers in the remuneration reports are practiced in the UK. From these practices, we can generally divide the levels of assurance from the auditors into four possible options:

1. No assurance, but a ‘minimum statutory statement’

2. 'Reasonable assurance-report'

3. ‘Consistency check’

4. ‘Limited assurance’-report

5. ‘Audit’-opinion of certain numbers

At Deloitte, we believe it will add value to boards and shareholders if the auditors provide limited assurance that the report complies with section 139b of the Danish Companies Act.

The auditor’s ‘consistency check’ will be based on procedures to ensure that:

  • Section 139b(3) of the Danish Companies Act is complied with
  • Data are prepared in accordance with the reporting practices described
  • Data are consistently reported year-on-year
  • Data on ‘expensed pay’ reconcile to the audited data in the consolidated financial statements
  • The disclosures of short-term and long-term incentive programmes are consistent with the audited data in the notes to consolidated financial statements.

The auditor’s ‘limited assurance’ report will be based on procedures to ensure that:

  • all of section 139b of the Danish Companies Act is complied with
  • data are prepared in accordance with the reporting practices described
  • data are consistently reported year-on-year
  • processes, tools, systems and controls for gathering, consolidating and aggregating data are assessed
  • data on ‘granted’ pay are consistent with the remuneration policy (e.g. any caps at grant), underlying plan documentation and fair value calculations at award/grant date
  • data on ‘expensed pay’ reconcile to the audited data in the consolidated financial statements
  • data on ‘vested pay’ (if reported) are consistent with the remuneration policy (e.g. any caps at vesting) and fair value calculations during the vesting period or at the vesting date
  • the disclosures of short-term and long-term incentive programmes are consistent with underlying plan documentation and the audited data in the notes to consolidated financial statements.

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