Agenda item

Heather Garrett, Audit Manager with KPMG, the Council’s external auditors, guided Members through the External Audit Plan 2010/11 prepared by KPMG and the four appendices attached to the Plan, setting out details on expectations, the balance of internal controls and substantive testing, independence and objectivity requirements and quality assurance and technical capacity.

Members were advised that the Plan outlined how KPMG would deliver its audit work for the Council, and comprised two objectives, as summarised in the Audit Commission’s Statement of Responsibilities of Auditors and Audited Bodies.  These were the financial statements (including the Annual Governance Statement), which was an opinion on the Council’s accounts, and the use of resources, which were the arrangements in place for securing economy, efficiency and effectiveness in the Council’s use of resources (the Value for Money Conclusion). 

It was reported that the audit work was based on an assessment of risk.  Key risks had currently been identified as the Medium Term Financial Plan (MTFP/Financial Standing), particularly in the light of the Comprehensive Spending Review, which would require the Council to make significant savings; the Implementation of International Financial Reporting Standards (IFRS), which all local authorities were required to implement for 2010/11 financial statements; Contingent Liabilities, which could be significant if they were to crystallise (for example, Luneside East); and Revenues and Benefits Shared Services, which would include a change to processes requiring controls and close oversight to ensure that the planned efficiencies were delivered in the budget.

Members were advised that the conversion process for IFRS had ended on 31^st March 2011.  The Council had been following a conversion plan and had a project team to assist in achieving a smooth transition to IFRS. 

It was reported that the work on the financial statements and the Annual Governance Statement involved four key stages - planning, control evaluation, substantive procedures and finalisation.  The audit planning process and risk assessment were ongoing processes and would be kept under review and updated if necessary.  The re-stated 2009/10 financial statement had been audited in February to ensure compliance with the CIPFA code.  The impact of each key risk audit area on the Plan was outlined, and the Audit Commission would be updated on the risk issues throughout the audit. 

Members were advised that the audit work was planned to detect errors that were material to the accounts as a whole and the margin of error (materiality) that could be accepted was £2.5m, which was 2% of total revenues.   The audit fee had not changed from that agreed in the high level audit strategy in April 2010 and was below the Audit Commission’s suggested scale fee.  The audit fee was indicative and based on the Council meeting agreed expectations.

Details of the audit timeline were set out in the report and it was noted that the year end audit conclusions would be reported to Committee on 21^st September 2011 and a summary of the audit, with key audit issues and outputs, would be contained in the annual audit letter issued in November 2011.

Following presentation of the External Audit Plan, Members raised questions on its content, which were suitably answered by the Audit Manager.

Resolved:

That the External Audit Plan 2010/11 be accepted.