Agenda item

Bishop Fleming, external auditor

Nathan Coughlin (NC) of Bishop Fleming introduced his report, the external audit plan for 2023-24, now that 2022-23 has been wrapped up. He highlighted the following:

-       Section 1 is a reminder of the scope of the audit – to give a true and fair view of the financial statement and make sure it complies with the code of practice;

-       the group accounts include accounts for CBH and Gloucestershire Airport Ltd.  Bishop Fleming has audited CBH for a number of years which helps the consolidation process, and will issue group instructions to Hazlewoods, who audit GAL.  GAL figures are not material at income and expenditure level, but are material to the balance figures and work needs to be done to rely on that;

-       the value for money work gives assurances on financial stability, governance and improving economy, efficiency and effectiveness.  Any recommendations raised by Grant Thornton will be put into the risk assessment and followed up through the current year;

-       auditors picking up backstop audits are developing programmes of work to get to a point in the future where they can give clean rather than disclaimer opinions; Bishop Fleming hope to be able to give clean opinions from March 2025 thereon;

-       regarding risk, the initial assessment is based on discussion with management and consistent with risk areas raised by Grant Thornton in the past.  Bishop Fleming proposes to rebut the significant risk of fraud and revenue/expenditure recognition because they are straightforward and the nature of the income and expenditure streams is consistent.  There are risks around valuations due to large numbers and estimates from management experts each year, and also around pension fund liability, where assurance is needed from the County Council scheme pension auditors that they are comfortable with the overall asset value of the scheme; 

-       the timetable is protracted this year due to Bishop Fleming starting late and challenges around turn-around time, but key targets are to get local audits back on track and improve the reputation of audits in the local government sector.  This will require intense work in the months to come, including a review of Grant Thornton’s files and work on the 2022-23 accounts, and detailed testing work to get assurances over processes systems;

-       regarding fees, scale fees are set by the Public Sector Audit Appointments (PSAA) and through a tender process; auditors are in effect subcontractors, with fees coming out of the scale rate depending on the size of the organisation;

-       finally, additional work on the 2023 records is underway, confirming what needs to be done to get to the right position, depending on the materiality of certain balances and reserves and how to get assurance as quickly as possible.  Teams are actively involved in sector-wide work to develop an approach for this, to get a clear backlog position, but with work still in progress and various elements of judgement required, this will be different for each organisation.  Bishop Fleming will continue to report back and communicate, and work with management to develop a plan.  

The Chair commented that the backstop offers a fantastic opportunity to get back on track but also carries risk, and hoped that there would be some leeway in how the sign-off for 2022-23 is viewed.

In response to Members’ questions, NC said that:

-       regarding the approach taken to valuation of assets and pension liability, Bishop Fleming is neither optimistic nor pessimistic, but looks at the different techniques and methods used by management experts carrying out valuations, together with internal guidance of auditors in the sector, to assess whether the valuations are materially accurate.  In a rolling cycle, they also consider what hasn’t been valued, such as the effect of increased heating costs on the valuation of a leisure centre;

-       for pensions, there are a lot of assumptions with regard to future liability and present value, but these matters are important for the financial statements, when stripped out for the overall financial health of an organisation, year-end pension accounting is not a key measure or focus;

-       as a firm, Bishop Fleming is hoping for a clean audit by 2024-25, but there is a lot of discussion in technical groups across the sector around uncertainty, particularly in reserves – these are not as straightforward as a corporate set of accounts, and if not signed off, it isn’t clear how much additional work on them will be needed.  This is also true of the fixed assets position, but the reserves position is the biggest challenge to technical teams at the moment.

In response to a new Member of the committee’s request for an explanation of the backstop/backlog position, NC said that:

-       the backstop is an attempt to clear the audit backlog, which for CBC only applies to 2022-23 accounts which were not signed off in that financial year, but in some organisations and councils applies to multiple years.  The backstop approach draws a line in the sand, including disclaimers in accounts for anything not finished from 2023 or earlier, and puts a reset phase in place.  This is what Grant Thornton has done for CBC’s 2022-23 accounts;

-       the sign-off deadline dates will slowly move forward until they are broadly where they used to be - September of the subsequent financial year – to stop tying up resource looking at things that are simply too old to consider.

The Chair confirmed that this is a public sector problem, not occasioned by late accounts – CBC has consistently presented its accounts by the required date. Although the 2022-23 audit cannot be fully signed off, it is good to know that something is being done at national level to address the unsustainable backlog in external audits for public sector accounts. The Director of Finance and Assets said this has had an impact on CBC and has made additional work for the finance team, having to update figures and refresh balances in the 2022-23 accounts following sign-off of the 2021-22 audit. It is good to have a plan in place to move forward, so that there is only the need to balance one year at a time.