Agenda item

Report of Bishop Fleming, external auditor

NC said the accounting policies set the tone for some of the risk areas in the audit plan for this year, and took Members through two key areas:

-       audit risks are essentially the same as the previous year, with a lot around making sure technical valuations are correct in the financial statements and balance sheets.  The three around land and buildings, investments properties, and heritage assets are based on expert views, though CIPFA guidance has moved for land and buildings - revaluations are required only every five years,  with indexation used in between to keep valuations up to the appropriate levels.  This is the first year, but from Year 2 onwards, it will be for the council to find the appropriate indexes – most council assets are based on building cost indices;

-       this links to building back assurance and discussions have already taken place with management about how to get back on track with these.  The proposal is that we effectively audit the revaluation process completed for March 2025 with one year on top to get back to a position we are happy with as an effective and efficient way to build back assurance;

-       there is a significant risk around management override control for all external audits – consideration of management ability to bypass control environments and how results can be mistaken through estimates and judgements in financial statements.  Work has been done using a journals analysis tool, taking full transactional lists from the finance system, to look at the way numbers are being processed directly into the finance system rather than being pushed through service ledger processes to look for significant adjustments;

-       the other risk area concerns IFRS 16 leases – management had done some work around this last year and had some advice around how certain leases should be accounted for.  It will be repeated as a risk area this year, to look at further with management and ensure the process is understood;

-       there is a high level plan in place for building back assurance with PPE fixed assets;

-       this year is about pulling together a detailed risk assessment and plan how to build back to ensure a full audit balance sheet for March 2026, with full transactional history for 2025-26.  We need to work out what testing needs to be completed in areas other than PPE, where we have an agreed approach.  There is a difficulty in some areas where transactional testing has not been completed for one or two years, so Bishop Fleming will need to complete this exercise alongside the audit to come up with a detailed plan they can share later in the year. From experience with other councils, they understand the challenges, risks and judgements they have to make around certain balances, and aim to have some element of qualification in the 2026-27 accounts opening balances, but a clean audit opinion in 2027-28, ahead of LGR.

Regarding LGR, a Member wondered how much certainty we have around consistency of approach to audits and estimates in judgements when we consolidate positions across the councils, and whether an overview will be needed at some point.  NC confirmed that this won’t be difficult in some areas, which are guided by the very detailed CIPFA code, but in areas requiring some judgement the different approach to valuations and indices taken by different organisations will need to be looked at.  Discussions about how this will be done are ongoing, and it is likely to need some simplification, but there will be no requirement to re-audit all that has been done in the preceding year.

In response to a Member’s question about what was included when calculating the materiality level, NC said this is not straightforward but was happy to share more detail in future. It starts from CIES expenditure levels and makes adjustments for certain items that are stripped out from there, then is 2% of that.

In view of the discussion today, a Member commented that they believe we are not expecting anything other than a disclaimed set of accounts in 2026-27, with a view to completing the process as described.