The External Auditor, EY, presented the Audit Planning Report for the year ended 31 March 2019. The purpose of the report was to provide the Committee with the basis to review the Auditor's proposed audit approach and scope for the 2018/2019 audit, in accordance with the requirements of the Local Audit and Accountability Act 2014, the National Audit Office's 2015 Code of Audit Practice, the Statement of Responsibilities issued by Public Sector Audit Appointment Ltd (PSAA), auditing standards and other professional requirements.
The Auditor highlighted the main audit risks and areas of focus as:
Risk of fraud in revenue and expenditure recognition.
Misstatements due to fraud or error.
Valuation of land and buildings.
Pension liability valuation.
Implementation of new accounting standards.
The first two risks were mandatory and had to be considered in all audits. The next two risks were unchanged from the previous year and were higher risks that the Auditor focussed on. Land and Buildings and Pension Liability were big numbers on the Balance Sheet made up from a number of assumptions. The Valuer and Actuary provided the numbers and because they were judgemental the Auditor engaged experts to support them in their testing.
The Implementation of new accounting standards was a new risk since two new reporting standards had been introduced in relation to financial instruments and revenue from contracts with Customers. The Auditor did not anticipate expenditure movement in the numbers but potentially different levels of disclosure. They were not identified as a significant risk on numerical changes but the Auditor wanted to give them some focus.
As well as the financial statements the Auditor also provided an assessment on the Value for Money risk. Two new risks had been identified:
Prior year value for money recommendations.
In relation to the first risk, the Auditor would look at the recommendations made in the previous year and ensure that they were implemented. The second risk recognised that the Council was under financial pressure and would look at the the key processes that underpinned the Medium Term Financial Plan.
Materiality was set at £8.1m which represented 1.8% of the prior year's gross expenditure on provision of services. All uncorrected misstatements relating to the comprehensive income and expenditure statement, balance sheet, movement in reserves statement, cash flow statement and the collection fund greater than £0.4m would be reported to the Corporate Affairs and Audit Committee.
The Chair asked how the Auditor would assess financial sustainability. The Auditor explained that they would assess the Council's savings plan and check how it was monitored and reported and what actions were taken to ensure it stayed on track. The Auditors met regularly with the Director of Finance, Governance and Support and Head of Financial Governance and Revenues to look at the Medium Term Financial Plan and focus on service areas under particular pressure such as adult and children's services.
AGREED that the Middlesbrough Council Audit Planning Report Year ended 31 March 2019 was received and noted.