To receive the External Audit - Audit Results Report 2018/19.
Helen Thompson, Ernst & Young, took the Committee through the draft External Audit – Audit Results Report 2018/19.
During the discussion of this item the following points were made:
· Two years ago the deadline for publishing of the statement of accounts had shifted from 30 September to 31 July.
· This year had been more challenging for many audit firms and Ernst & Young. A number of audits had been rescheduled and delayed for a number of reasons. With regards to Wokingham, resources had started from late June. Audit resources remained on site.
· Members were informed that Ernst & Young had that day received correspondence from the auditors auditing the Royal Berkshire Pension fund, stating that they anticipated that they would not be able to meet the 31 July deadline. Ernst & Young could not issue audit assurances without an opinion on the pension fund. As the auditors of the pension fund had not categorically ruled out meeting the 31 July 2019 deadline, Ernst & Young would continue to work to its plan.
· Councillor Burgess asked what the ramifications would be of not meeting the 31 July deadline. Helen Thompson indicated that there were no legal or financial penalties and that a report was no longer published which identified which authorities had not met the deadline. If such a report were published it would be made clear that the delay was not of Ernst & Young or the Council’s making. Other Berkshire local authorities would also be effected.
· Councillor Smith asked which company were auditing the pension fund. Helen Thompson indicated that it was Deloitte but that it was the first year that they were taking over the audit, which could be challenging. Councillor Smith asked if he could see the correspondence with Deloitte regarding the delay. Helen Thompson indicated that this was unlikely but that she could possibly provide a summary.
· Councillor Smith requested that there be an update on the auditing of the pension fund situation prior to the signing of the letter of representation.
· The overall materiality assessment had been updated to £6.269m,
· Helen Thompson provided an update on outstanding matters including Property, Plant and Equipment (PPE), Debtors and Creditors, Income and Expenditure and Whole of Government Accounts. There remained some work still to do with regards to Journal Testing.
· A status update around pension disclosures had been included. A national issue had resulted in the consideration of the need for a relatively late change to the Council’s accounts and IAS19 disclosures. It related to legal rulings regarding age discrimination arising from public sector pension scheme transitional arrangements. The draft accounts did not recognise this issue as it was considered not to be sufficiently material to disclose a contingent liability. However, since the year-end there had been additional evidence, including the legal ruling by the Supreme Court on 27 June 2019 which denied the Government leave to appeal, which suggested that the amounts should in fact be able to be fully calculated and so included in the IAS19 liability disclosed within the financial statements. Bob Watson explained that the Council had not adjusted for this as it would not impact on the General Fund balance for the financial year. It would be factored into the contribution rates when they were reviewed.
· Helen Thompson indicated that there was an unadjusted error around the national non-domestic rates return (NNDR). The difference was possibly a historic discrepancy between the non-domestic rates model used and the non-domestic rates ledger. Bob Watson emphasised that further work would be undertaken regarding which required correction; the model or the ledger. In response to a question, Mark Thompson clarified that the model used was a CIPFA model, well publicised for calculating business rates and accounting. A CIPFA expert had not been able to find issue with the model but further work would be undertaken in the autumn.
· Councillor Smith expressed concern that this was another issue within debtors. Bob Watson commented that historically there had been reduced resources in the Debtors Team but that he was working with Simon Price, the Assistant Director with responsibility for this area, to understand the position. In response to a question from Councillor Smith, Mark Thompson indicated that if it was written off there could potentially be an impact on the deficit on the collection fund.
· Helen Thompson took the Committee through areas of audit focus, beginning with significant risks. With regards to misstatements due to fraud or error, work carried out so far had not highlighted any concerns.
· With regards to the risk of incorrect capitalisation of revenue expenditure, REFCUS had been tested to ensure that it was appropriate for the revenue expenditure incurred to be financed from ring fenced capital resources. No issues had been identified.
· Other areas of audit focus included;
Ø Pension liability;
Ø Group accounting;
Ø Valuation of Property Plant and Equipment/Investment Property
Ø PFI accounting;
Ø IFRS 9 financial instruments; and
Ø IFRS 15 Revenue from contracts with customers
· Subject to the satisfactory completion of the audit it was anticipated that an unqualified audit opinion would be issued on the accounts.
· A significant risk around considerable change in the political and senior leadership in 2018 had been identified as a value for money risk. However, Ernst & Young did not have concerns around the Council’s financial planning as such.
· There were no concerns identified relating to the oversight of subsidiaries.
· Helen Thompson suggested that although the document contained all the required information, the Council’s Medium Term Financial Plan could be easier to navigate. Members asked that Ernst & Young provide examples of good MTFPs which the Council could learn from.
· The Committee discussed the audit fee.
· It was agreed that Ernst & Young would circulate the report once it was finalised.
· It was suggested that the Committee delegate authority to the Chairman to sign the letter of representation should the audit be completed by 31 July 2019. If it was not, an additional Audit Committee would be arranged to consider the financial statements.
RESOLVED: That the Ernst & Young – Audit Results Report 2018/19 be noted.