Agenda item

Report of External Auditors BDO.

The Committee considered the planning report of BDO relating to the audit for the year ending 31 March 2016.  The report highlighted and explained the key issues which BDO believed were relevant to the audit of the financial statements and use of resources of the authority for the year ending 31 March 2016.

Detailed in the report were BDO’s engagement timetable, audit scope and objectives, authority materiality, overall audit strategy, key audit risks and other matters, BDO’s independence and proposed fees in relation to last year.

Ms Janine Combrinck representing BDO was in attendance to present the report and respond to questions.

The Committee discussed BDO’s proposed set materiality of 2% of gross expenditure, which equated to £2 million.  Any financial errors discovered during the audit above this standard level set by BDO would need to be amended by the Council in its financial statements in order to keep a clean audit opinion.  It was clarified that BDO did look at errors below this level as part of their audit process, which would be part of the report considered by the Audit and Governance Committee.  The Financial Services Manager added that in previous years any errors identified during BDO’s audit, regardless of their materiality level, had been amended in the accounts accordingly.

It was proposed by Councillor Smart and seconded by Councillor Sabri that BDO report back to the Committee relating to the impact on their audit if the materiality level was set at £1 million.  This was agreed unanimously by the Committee.  Ms Combrinck stated that the official report would be considered at the September 2016 meeting.  Any information related to this issue prior to the meeting would be circulated to the Committee.

In response to a question from the Committee relating to control of Welbeing, the Financial Services Manager clarified that treasury management advisors were currently being consulted on whether this fell under the group accounting rules.  If it was considered to fall under these rules, the accounts would be grouped accordingly.

Ms Combrinck detailed the narrative reporting risk, which would require the Council to replace their Explanatory Foreword in the financial statements with a ‘Narrative Report’.  This would require the Council to include additional information not previously included.

The Committee queried the reconciliations between the figures contained in the ‘Narrative Report’ and the accounts.  The Financial Services Manager responded that there was a note to the accounts that attempted to complete this reconciliation and added that there was an upcoming change in the accounting code that altered the way income and expenditure was reported and that specific reconciliation note.  This would allow the Council to produce its income and expenditure accounts in accordance with its management structure and provide a clearer link. Although not a statutory requirement until 2016/17, the Committee was advised that once the accounts were closed in June 2016, a revised income and expenditure account would be produced and brought to the September 2016 meeting with the Statement of Accounts to provide the requested reconciliation.  A draft copy of this would be circulated to the Committee prior to the meeting.

Ms Combrinck added that the note to the accounts, referenced by the Financial Services Manager was audited by BDO and should provide the reconciliation between the management accounts and statement accounts. This would be highlighted at the September 2016 meeting.

The Committee was advised that the proposed fee for 2015/16 totalled £67,781, which was significantly lower than last year’s fee but covered the same amount of audit work.

In response to a question from the Committee regarding the statutory engagement team rotation, detailed in the report, Ms Combrinck responded that whilst in theory a project manager’s involvement with the audit process could cover up to 10 years, this was highly unlikely in practice. The Committee was advised that after 3 years the market would open and the Council would be able to select their next auditors.

RESOLVED: (Unanimous) (1) That BDO report back to the September 2016 meeting of the Audit and Governance Committee, relating to the impact on their audit of setting the materiality level of gross expenditure at £1 million.

(2) That the report be noted.