Agenda item

Ernst Young, the External Auditor to present the 2020/21 Audit Plan which includes an analysis of key risks, the audit strategy, reporting and timescale.

Hayley Clark, External Auditor (Ernst Young) introduced the report, the purpose of which was to present the 2020/21 Audit Plan which included an analysis of key risks, the audit strategy, reporting and timescale.

Ms. Clark advised that in assessing risk areas for the 2020/21 audit, the following areas had been considered by External Audit:

·         Misstatements Due to Fraud or Error - focusing on the use of journals and estimates throughout the audit and considering the risk of fraud in revenue and expenditure recognition:

i.              In relation to revenue recognition, 2 risks had been identified for the accounting for additional Covid-19 funding and potential impact/understatement of other income/commercial based income.

ii.            In relation to the expenditure recognition risk, External Audit had reviewed the overstatement of expenditure and if there was any spend that had been brought forward that should have been accounted for in 2021/22.

·         Valuation of Property, Plant and Equipment and Investment Properties – this had been highlighted as a significant risk, due to a change in valuers, which carried an additional degree of risk for External Audit focus.

·         Pension Valuation – Local Government Pension Scheme – this was classed as a higher inherent risk for External Audit focus due to the assumptions and sensitivity involved in accounting the balance.

Ms. Clark highlighted External Audit’s materiality levels.  The level of materiality used when assessing the risk of error in the financial statements (planning materiality) was £574k.  The level of materiality used to perform detailed testing (performance materiality) was £431k.  The audit differences threshold for any misstatements during the audit, which remained uncorrected was £29k and these would be included as part of External Audit reporting.

Ms. Clark drew Members attention to the value for money conclusion, advising that there had been a change to the NAO’s 2020 Code of Audit Practice.  External Audit remained focused on 3 key areas (financial sustainability, governance and improving economy efficiency and effectiveness).  However, a slightly different risk assessment was required in planning for work to be undertaken.  Any significant risks identified would result in more detailed work.  Additional commentary would be issued with External Audit’s assurance opinion, setting out the arrangements in place across the 3 key areas.

During discussion the following points were noted:

·         Members noted that the External Audit Plan was submitted later this year due to a number of changes in External Audit resources.  Although the audit was in progress, Member feedback would be considered and the audit approach adjusted accordingly.

·         Members noted that External Audit made additional fraud related enquiries (with the Committee Chair, Monitoring Officer Senior Leadership Team and Internal Audit), as part of the audit.

·         External Audit’s proposed audit fee was similar to fees proposed for its other clients and these fees were subject to significant scrutiny.  They reflected the risk assessment process, the nature of balances and considerable resourcing pressure across the audit profession, including the ability to attract and retain auditors to enable delivery of audits.  The fee model applied would be impacted by an increase or decrease as necessary.

RESOLVED that the Committee:

1)    Approved the External Audit Plan for 2020/21;

2)    Confirmed its understanding of and agreement to the materiality and reporting levels set out in the plan;

3)    Noted the delay to the timing of the audit of accounts and subsequent publication of the audited accounts.