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Agenda item

External Auditor's Audit Plan 2020/21

To consider the external auditor’s Audit Plan 2020/21.  


11.1          Attention was drawn to the external auditor’s audit plan for the year ending 31 March 2021, circulated at Pages No. 50-72.  Members were asked to consider the information provided.

11.2          The representative from Grant Thornton advised that the audit plan gave an assessment of the significant risks which had been very much impacted by the COVID-19 pandemic as well as the increased expectations from the regulators.  The audit was underway and was based on three significant areas of risk: valuation of land and buildings; valuation of net pension fund liability; and management override of controls.  In respect of the latter, it was noted this could not be rebutted - an assumption was made that management sought to circumvent those controls.  A key element of the regulator’s review was the level of challenge the external auditors placed on management; everything in the accounts needed to be challenged in terms of whether it was in the right place.  It was particularly important when there were significant judgements to the estimates, for instance, valuations of land and buildings and the new pension fund liability, as those liabilities would not crystallise until the future and very small changes had a material impact on the Council’s accounts.  Grant Thornton determined financial statement materiality based on a proportion of the Council’s gross expenditure for the financial year and, at the planning stage, materiality was £742,000 which equated to 2% of the forecast gross expenditure for the year.  This could not be set any higher as, in Grant Thornton’s view, the Council was already a very well run authority; it could be set lower but that would reduce the issues that would be reported.  The revised approach to the value for money work had come into effect from audit year 2020/21 and the three main changes arising from the approach were: a new set of criteria covering financial sustainability, governance and improvements in economy, efficiency and effectiveness; more extensive reporting with a requirement for Grant Thornton to produce a commentary on arrangements across all of the key criteria rather than the previous reporting by exception approach; and the replacement of the binary approach to value for money conclusions with more sophisticated judgements on performance, as well as key recommendations on any significant weaknesses in arrangements identified during the audit.  It was noted that the audit findings report would be presented at the next Audit and Governance Committee meeting. 

11.3           Members were advised that the public were entitled to ask questions of the external auditors and could request a number of actions if they believed they were appropriate, one of which was a public interest report; these had previously been very rare, with the last one over 12 years ago, but over the last 18 months a whole slew had been received.  One other area of change was around the going concern and a practice note had been updated to allow auditors to apply a continued provision of service approach to audit going concerns, where appropriate.  A number of local authorities had been issued with Section 114 notices or were at risk of being issued with one when they had run out of money or were in a negative financial position.  Tewkesbury Borough Council was a long way off that position but there were lessons to be learnt so he urged Members to look at public interest reports when they were issued – it often came down to the culture and behaviours of Members as well as management.

11.4           With regard to the audit fee, the proposed fee for 2020/21 was £55,589; the fee had increased over the last two years with quite a large increase on the scale fee.  The scale fee had been set based on a risk assessment of the Council undertaken over a decade ago and the external auditors had been lobbying Public Sector Audit Appointments (PSAA) to update this to reflect the new requirements now in place.  Page No. 67 of the report gave a detailed analysis of how the scale fee was arrived at and PSAA had agreed it needed to change due to the new expectations in terms of the value for money work and further revisions.  Officers always gave good pushback and challenge on the fee and the external auditors made representations to PSAA which was ultimately responsible for confirming the fee.  PSAA was going out to consultation on the next contract round; the current contract had been due to run for five years with an option to extend for two years but it would not be extended.

11.5           With regard to the pension liability, a Member indicated that quite a lot of pensions were invested in fossil fuel industries and, whilst she appreciated Tewkesbury Borough Council used the Gloucestershire County Council pension fund, she asked whether that was considered.  The Finance Manager advised that Gloucestershire County Council produced its own accounts and she undertook to locate and circulate the accounts from last year so Members could see what it had invested in.  A Member indicated that she understood the reasons for the changes to the audit fee but noted that it had reduced a few years ago and was now increasing so she asked whether it was likely to change again, or whether it would remain at roughly the same level going forward.  The representative from Grant Thornton suspected that the direction of travel had now been set so it was more likely the fee would increase as opposed to being reduced.  Another Member questioned how long term the external auditor’s assessments were or whether they were more of a snapshot in time.  In response, the representative from Grant Thornton advised that the view was based on the accounts provided as at 31 March 2021 in this instance.  They did, to some extent, have regard to events happening after that date which would impact on those accounts.  Notwithstanding this, by the time the accounts were signed-off, a lot of the assets, particularly the pension fund, had increased again.  The COVID-19 pandemic had a positive impact on liabilities as this year assets had increased and liability had increased at a faster rate so assumptions had been made that savings etc. would increase; this was all set out in the detailed accounts.  Ultimately, the audit was always based on a position in time unless something so significant was to happen that it would impact that value; the normal course of events would not change that value.

11.6           Having considered the information provided, it was

RESOLVED          That the external auditor’s audit plan 2020/21 be NOTED.

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