Agenda item

Officers noted the completion of the 2021/2022 statement of accounts audit by EY under delegated authority. The Vice-Chair and officers had a thorough meeting with EY to review the audit results and agreed on the final sign-off, which was now brought to the Committee for formal ratification.

Additionally, the completion of the 2021/2022 accounts allowed the production of the draft 2022/2023 accounts, which were published on the council website. However, due to the state of local authority audits nationwide, there was a delay in the audit process, and a government consultation was ongoing regarding how to proceed.

Officers highlighted completed audit activities for 2021/2022, such as housing benefit assurance process, teachers' pension, and capital receipts pooling, with no adverse findings to report to the Audit Committee. Officers noted an increase of £60,000 in variation fees for 2021/2022 and the consultation by the Public Sector Audit Appointments body (PSAA) proposing a significant fee rise for 2023/2024 audits.

EY then provided context on the challenges in the public audit market, citing delays in completing audits across local governments in England. There was a complex set of circumstances around system leadership, resources and capacity. To address these delays, the former Minister with responsibility for local government appeared at Parliament's Levelling Up Committee in July and issued a cross statement letter which set out a number of areas and over the summer there would be ongoing consultation between stakeholders to address these delays, but no firm guidance had been provided yet from either the Financial Reporting Council (FRC) or the department. The focus was on completing pension fund audits and value-for-money reporting. The third area was around focusing on audits that were just about to be finished but could not previously be finished due to national technical issues. The guidance was awaited before any decisions were made on 2022/2023 audits and whether it would be a sensible position to progress with them bearing in mind that one of the announcements within the ministerial statement was that where audits are not completed by 31 March 2024, they would automatically move to a type of disclaimed opinion rather than the audits continuing without a finite date. Until this guidance was received, it did not seem appropriate to commence the 2022/2023 audit because at the current time if that back stop date remained then it was unlikely that EY would get through the whole audit and Hillingdon would have to pay for the work that was completed but with no result or completion of the process.

EY presented the Pension Fund audit plan for 2022/2023, identifying key risks and changes. IAS26 disclosures were a higher area of inherent risk. There was a specific risk around the valuation of more complex level three investments which were harder to value.

There had been a minor change in the approach to auditing for two reasons: the first was that there was some testing on triennial membership numbers; the second was that EY would normally leverage some assurance from work on the Council's net liability, which they had not audited this year.

There would remain a focus on going concern because of the greater level of volatility and uncertainty as well as auditing standards.

Another change had been the introduction of IAS315 as a new standard that applied to audits for 2022/2023.

Members asked about the potential future c£400,000 fee for the Council and asked if this was in line with similar sized private sector organisations. Officers explained that previous years had been excessively low and that if the cost had gone up in line with general increases, then this would be the expected figure.

Members asked about whether the fee paid would affect the timeliness of the audit being completed. EY noted the delays in the public audit market and the complex set of circumstances. EY also noted that the new fee reflected the degree to which the previous fee that had been set so low and that this had been a market reset. There was no difference between the work that an auditor would do for a private company than for a local authority. The quality of the work was similar, although the work for a local authority may be more complex. The increased cost also reflected the need for auditors to be fairly remunerated for the complexity of work required. Auditors had no control over the regulators/ the Financial Reporting Council or any new regulations that they put in place or changes in auditing standards.

On why the Council went with the PSAA approach, officers noted that there was a competitive process in terms of bidding to do local government audits. Assurances were given that the PSAA had been challenged robustly on this. Fee increases were a result of underfunding over the past few years and there were only a few audit firms available to carry out the work.

The Chair noted the benefit of retaining the same external auditors.

Members asked for clarity on the disclaimed opinion. EY noted that a disclaimed opinion was one type of modified opinion. Traditionally external auditors would express an opinion that confirmed that the financial statements were true and fair. Another type of modified opinion would be a limitation of scope whereby the external auditor could express a true and fair opinion except for a couple of specific areas. A disclaimed opinion is where the auditor cannot express an opinion because they do not have the evidence to support any opinion.

Given that it was currently six-seven weeks into the pension fund audit plan, the Chair asked if things were going as they should be. EY noted that they were making good progress and were aiming to conclude by the end of December with the aim of bringing a draft audit results report to Committee in February 2024.

The Chair noted that the Committee were happy to ratify the accounts and noted the other recommendations.

RESOLVED: That the Audit Committee:

1. Ratified the completion of the 2021/2022 external audit Statement of Accounts, including the Auditor’s Annual Report and Value for Money statement, which were approved under delegated authority on 28 September 2023;

2. Noted the completion of all 2021/2022 certification requirements;

3. Noted the 2022/2023 Pension Fund Audit Plan;

4. Noted the EY verbal update on 2022/2023 Council Audit;

5. Noted progress on 2022/2023 certification of the Housing Benefit Assurance Process and Teacher’s Pension; and

6. Noted the proposed Audit Fees