Agenda item

To consider the External Audit Plan for 2023/24 produced by Azets.

Paul Grady (Azets) presented the Council’s proposed External Audit Plan for 2023/24.

Mr Grady referred to the Audit scope and general approach would include the concept of materiality, whereby any identified errors greater than £100,000 would be recorded and discussed with SBC and, if not adjusted, confirmed as immaterial as part of the Council’s letter of representation to Azets.

Mr Grady drew attention to the significant risks of material misstatement, and highlighted the identified risks of Management override of controls, prior year opinion on the financial statements, fraud in revenue recognition and expenditure (rebutted), valuation of other land and buildings and investment property, and valuation of the defined pension fund net liability/asset, as well as a risk (“Other Risk 1”) regarding the Council’s income strip scheme.

In respect of the prior year opinion on the financial statements, Mr Grady stated that, as at the date of the writing of the 2023/24 Audit Plan, the Council had not been able to obtain an unmodified opinion from its predecessor auditor for the 2022/23 financial year.  In addition, the opinions for the financial years 2021/22 and 2020/21 had not yet been issued.  There was therefore a risk that issues not yet identified in the open audit years arose in the completion of those audits which may impact the current (2023/24) audit year.  There was a further risk that, in the event that an “audit backstop” in implemented for 31 March 2024, the prior year period opinions may be qualified by a “limitation in scope” or disclaimed in full.

Mr Grady explained that, in the above eventuality, there may be limited assurances available over the Council’s opening balances which would involve higher levels of management judgement and more complex estimation techniques (e.g. defined benefit pensions valuations and property, plant and equipment valuations, amongst others).  Furthermore, significant transactions, accounting treatment and management judgements may not have been subject to audit for one or more years or at all.  This may include management judgements and accounting treatment in respect of significant new schemes (such as major capital initiatives), changes to group structures or other significant accounting treatments which came into effect during the

qualified or disclaimed period, going back to 2019/20.

It was noted that the potential absence of prior year assurance raised a significant risk of material misstatement at the financial statements level that may require additional audit procedures.

Mr Grady stated that procedures to be performed in order to mitigate the above risks of material misstatement would include:

·         Considering the findings and outcomes of unfinished prior year audits and their impact of the 2023/24 audit;

·         Considering the impact on Azets work of the impact of qualified or disclaimed audit opinions, particularly regarding open balances and “unaudited” transactions and management judgements made in the previous years which continued into 2023/24; and

·         Considering the impact of any changes in Code requirements for financial reporting in previous and current audit years.

Mr Grady then referred to the Value for Money (VfM) arrangements section of the Audit Plan, and commented that no risks of significant weakness had yet been identified under the three VfM specified reporting criteria of Financial Sustainability: Governance; and Improving economy, efficiency and effectiveness.

Mr Grady outlined the timetable for the 2023/24 audit set out in the Plan and referred to the audit fees, as set out by the PSAA each year, which would include work on certification of the Council’s Housing Benefits claim.  He concluded by drawing attention to Appendix 1 to the report, which confirmed the overall materiality levels for the financial statements and Performance materiality.

In response to a Member’s question, Mr Grady stated that the template used by Azets for the Audit Plan document was bespoke for SBC.  In reply to a further question, he provided an assurance that the resources to be allocated by Azets for the 2023/24 audit were robust to deliver the Plan on schedule, and that preliminary work had already commenced.

In reply to a question regarding the “other risk” set out in the plan referred to as “income strip scheme”, the Assistant Director (Finance) confirmed that this referred to the audit of companies which had been set up by the Council for certain activities.  These companies were audited separately, but Azets were also required to audit them as part of the Council’s overall external audit.

It was RESOLVED that the External Audit Plan for 2023/24, as submitted by Azets, be approved.