Driving growth and trust: How audit and assurance adds value for investment management services

For companies that provide investment management services, Type 1 and Type 2 reports can play an important role in evaluating the design, implementation and effectiveness of control environments. 

Type 1 and Type 2 reports are governed under ASAE 3402 – Assurance reports on controls at a service organisation (ASAE 3402). Organisations providing investment management services need to focus on GS007 under ASAE 3402, and its application.

What Is ASAE 3402?

ASAE 3402 is the Australian equivalent of the ISAE 3402 used internationally, which assesses the statement produced by service organisations relating to the design, implementation and effectiveness of their internal controls and the impact on services provided to clients.

There are two key assurance reports: Type 1 and Type 2, these reports are guided by the GS007.

What Is GS 007?

GS007 outlines the procedures and standards for evaluating the design, implementation and operational effectiveness of internal controls within a service organisation. An independent audit report will highlight strengths and weaknesses in governance and internal controls.

What Is a Type 1 Report?

A Type 1 report assesses the design and implementation of controls and evaluates whether the controls were properly designed and implemented.

A Type 1 report will assess:

• The design of the controls implemented by the service organisation.
• Whether these controls were in place and were appropriately designed to meet the minimum control objectives.
• The implementation of the controls as of a specific date.

What is a Type 2 Report?

A Type 2 report provides the same information as a Type 1 report and also evaluates their operating effectiveness over a defined period, typically spanning 6 to 12 months.

A Type 2 report will:

• Assess whether the controls are designed appropriately (similar to the Type 1 report).
• Evaluate whether the controls have been operating effectively over the review period.
• Provide evidence of the operational performance of controls during the review period.

A Type 2 report offers a higher level of assurance because it demonstrates that the service organisation's controls are not only well-designed but have been operating effectively over time.

Why is this important for companies that provide investment management services?

This reporting can deliver benefits beyond compliance for organisations and clients.

Corporate governance

An independent audit report will highlight strengths and weaknesses in governance and internal controls. This will help strengthen internal controls and policies to mitigate risks. It also ensures that risk frameworks will protect shareholders and stakeholders of wealth management companies. It is essential that robust controls are in place to help navigate complex financial regulatory requirements.

Strong reputation in the market

Audited statements can deliver increased transparency and accountability. Organisations with a favourable audit opinion will be able to build a strong reputation among existing and potential clients. Clients can be confident that their third-party suppliers are committed to best practices and regulatory requirements. This may be considered a competitive advantage and open new opportunities for market expansion.

Support long-term growth

Strong governance and internal controls will deliver value beyond short term gains. It will ensure that an organisation is resilient and can operate successfully in volatile economic conditions. Organisations with a good governance framework and strategic decision making will be able to successfully identify areas for growth and investment while reducing risks. This approach will build a culture of compliance and ethical behaviour that enables sustainable growth.

How can PKF help?

PKF can work with companies that provide investment management services to produce an independent report which assesses the design, implementation and operational effectiveness of the internal controls in place in accordance with the AUASB. Our audit approach isn’t designed to just provide an audit opinion, but to provide value-added recommendations and insights in relation to operation of the internal control environment, risk management and governance and opportunities for efficiency and improvement.

For any further guidance, please contact your local PKF team.