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Communication concerning financial statements to those charged

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Communication concerning financial statements to those charged

Communication concerning

     financial statements to

     those charged with

     governance

    Norfolk County Council

    INSIDE THIS REPORT

    PAGE 2

    Summary Report

    ? Introduction

    ? Background

    ? Auditor’s report ? Unadjusted misstatements

    ? Material weaknesses in accounting and

    internal control systems

    ? Qualitative aspects of accounting practices

    and financial reporting

    ? Matters required by other auditing standards

    to be reported to those charged with

    governance

    ? Other matters

    ? Next steps

    ? Independence and objectivity

    PAGE 8

    Appendix 1

    ? Draft auditor’s report

    14112003NorfSAS610 Draft Version Reference:

    May 2010 Date:

     SUMMARY REPORT

    Introduction

    The Council is responsible for the preparation of financial statements that present fairly its financial position as at 31 March 2003 and its income and expenditure in the year then ended We are responsible for undertaking an audit and reporting whether in our opinion the Council’s financial statements do present fairly its financial position and income and expenditure.

    The Council is responsible for the preparation of a Statement of Internal Control in accordance with the provisions of the Code of Practice on Local Authority Financial Accounting in the United Kingdom: a Statement of Recommended Practice. We are required to report where we become aware in the course of our audit of inconsistencies with the disclosures made by the Council.

    The Council submitted draft financial statements to us on 4 August 2003 and we have now substantially completed our audit of those statements. This report details key matters arising from our audit that we must communicate to those charged with governance prior to giving an opinion on those financial statements.

    It should be noted that our audit does not seek either to obtain absolute assurance that the financial statements present fairly your financial position or assurance that they are accurate in every regard.

    In this context, we adopt a concept of materiality. We seek, in planning and conducting our audit of the accounts, to identify material errors in your financial statements. Material errors are those which might be misleading to a reader of the financial statements.

    Our calculation of overall materiality is ?4.5m. However, we may determine that certain items of account may be subject to a lower materiality level due to their political or numerical sensitivity.

    This report details key matters arising from our audit that we must communicate to those charged with governance prior to giving an opinion on those financial statements.

    Background

    A revised Statement of Auditing Standards (SAS), SAS 610 Reporting to those charged with governance is applicable for the first time to the audit of the Council’s accounts. It requires

    auditors to report to those charged with governance (as distinct from management) certain matters before they give an opinion on the financial statements:

    Auditors should communicate to those charged with governance:

    a. expected modifications to the auditors' report;

    b. unadjusted misstatements;

    c. material weaknesses in the accounting and internal control systems identified during

    the audit;

    d. their views about the qualitative aspects of the entity's accounting practices and

    financial reporting;

    e. matters specifically required by other Auditing Standards to be communicated to

    those charged with governance; and

    f. any other relevant matters relating to the audit.

    Communication concerning financial statements to those Norfolk County Council (Draft Version) Page 2 charged with governance Audit 2002/2003

     SUMMARY REPORT

    We agreed with the Council that the communications required by SAS 610 in advance of

    issuing our report on the annual financial statements of the Council would be with the

    Cabinet Committee and the Council, which is the body which adopts the statement of

    accounts under the Accounts and Audit Regulations.

    We have considered each of the areas listed above and our views are set out below together

    in this first year with explanations of the issues that we are responding to.

    Auditor’s report The standard requires that we report to those charged with governance any proposed

    modifications to our report on the financial statements. The standard explains the reasons

    for this requirement:

    Auditors discuss expected modifications to the auditors' report on the financial

    statements with those charged with governance to ensure that:

    ? those charged with governance are aware of the proposed modification and the

    reasons for it before the report is finalised;

    ? there are no disputed facts in respect of the matter(s) giving rise to the proposed

    modification (or that matters of disagreement are confirmed as such); and

    ? those charged with governance have an opportunity, where appropriate, to provide

    the auditors with further information and explanations in respect of the matter(s)

    giving rise to the proposed modification.

    On the basis of our audit work we do not currently intend to issue a non-standard report on

    the Council’s financial statements. A draft report is attached at Appendix 1.

    Unadjusted misstatements

    We are required to report to you all misstatements other than those of a clearly trifling

    nature. A trifling error is an entirely inconsequential error, whether taken individually or in

    aggregate and whether judged by any quantitative and/or qualitative criteria.

    All non-trifling errors identified in the course of our audit have been amended by

    management.

    Material weaknesses in accounting and internal control

    systems

    We have limited responsibilities to report to you weaknesses in accounting systems and

    systems of internal control identified in the course of our audit. SAS 610 provides:

    A material weakness in the accounting and internal control systems is a deficiency in

    design or operation which could adversely affect the entity's ability to record, process,

    summarise and report financial and other relevant data so as to result in a material

    misstatement in the financial statements. Auditors normally do not need to communicate

    information concerning a material weakness of which those charged with governance are

    aware and in respect of which, in the view of the auditors, appropriate corrective action

    has been taken, unless the weakness is symptomatic of broader weaknesses in the

    overall control environment and there is a risk that other material weaknesses may occur.

    Material weaknesses of which the auditors are aware are communicated where they have

    been corrected by management without the knowledge of those charged with

    governance.

    Communication concerning financial statements to those Norfolk County Council (Draft Version) Page 3 charged with governance Audit 2002/2003

     SUMMARY REPORT

    We have a duty to report adjusted errors in financial statements where they are relevant to

    your wider governance responsibilities.

    Our audit has not identified weaknesses in systems of accounting and financial control which

    we should report to you.

You should be aware that we do not provide a comprehensive statement of all weaknesses

    that may exist in the accounting and internal control systems or of all improvements that

    may be made, but have addressed only those matters that have come to our attention as a

    result of the audit procedures performed.

    Qualitative aspects of accounting practices and financial

    reporting

    SAS 610 places specific duties on auditors to report their assessment of qualitative aspects

    of accounting practices and financial reporting to those charged with governance:

    In the course of their audit of the financial statements, auditors consider the qualitative

    aspects of the financial reporting process, including items that have a significant impact

    on the relevance, reliability, comparability, understandability and materiality of the

    information provided by the financial statements. Auditors discuss in an open and frank

    manner with those charged with governance the auditors' views on the quality and

    acceptability of the entity's accounting practices and financial reporting. Such discussions

    may include:

    ? the appropriateness of the accounting policies to the particular circumstances of the

    entity, judged against the objectives of relevance, reliability, comparability and

    understandability but having regard also to the need to balance the different

    objectives and the need to balance the cost of providing information with the likely

    benefit to users of the entity's financial statements;

    ? auditors explain to those charged with governance why they consider any

    accounting policy not to be the most appropriate, and request those charged with

    governance to make appropriate changes. If those charged with governance decline

    to make the changes on the grounds that the effect is not material, the auditors

    inform them that they will consider qualifying the auditors' report as soon as the

    effect of not using the most appropriate policy can reasonably be expected to

    influence the economic decisions of users of the financial statements.

    ? the timing of transactions and the period in which they are recorded;

    ? the appropriateness of accounting estimates and judgments, for example in relation

    to provisions, including the consistency of assumptions and degree of prudence

    reflected in the recorded amounts;

    ? the potential effect on the financial statements of any uncertainties including

    significant risks and exposures, such as pending litigation, that are required to be

    disclosed in the financial statements;

    ? material uncertainties related to events and conditions that may cast significant

    doubt on the entity's ability to continue as a going concern;

    Communication concerning financial statements to those Norfolk County Council (Draft Version) Page 4 charged with governance Audit 2002/2003

     SUMMARY REPORT

    ? the extent to which the financial statements are affected by any unusual

    transactions including non-recurring profits and losses recognised during the period

    and the extent to which such transactions are separately disclosed in the financial

    statements;

    ? apparent misstatements in the other information in the document containing the

    audited financial statements or material inconsistencies between it and the audited

    financial statements;

    ? the overall balance and clarity of the information contained in the annual report;

    ? disagreements about matters that, individually or in aggregate, could be significant

    to the entity's financial statements or the auditors' report. These communications

    include consideration of whether the matters have, or have not, been resolved and

    the significance of the matters.

    We have carefully considered the qualitative aspects of the Council’s accounting practices

    and financial reporting. No matters have come to our attention that we would wish to draw

    to the attention of those charged with governance.

    Matters required by other auditing standards to be reported to

    those charged with governance

    Other auditing standards require us to communicate with you in other specific circumstances

    including:

    ? where we suspect or detect fraud, even if the potential effect is not material to our audit

    of the financial statements

    ? in respect of the conclusion that the Council is a going concern

    ? where there is an inconsistency between the Council’s financial statements and other

    information in documents containing the financial statements.

    We have identified no such matters in the course of our audit.

    Other matters

    We wish to draw these further matters to your attention:

1. Pension liabilities

In accordance with the Code of Practice on Local Authority Accounting in the United Kingdom:

    a Statement of Recommended Practice, the authority is required to make specified

    disclosures in respect of its liabilities to pay pensions and associated benefits. This is a

    transitional requirement pending the full implementation of FRS17.

The authority has relied, for the purposes of making these disclosures, on information

    supplied to it by Norfolk County Pension Fund in its capacity as administering authority of the

    pension scheme, and on information provided by the scheme’s actuaries.

Amongst the membership of the pension scheme are persons employed by bodies in respect

    of which valuations of the assets and liabilities in accordance with FRS17 were not

    undertaken at 31 March 2003. It has not, therefore, been possible to confirm in total the

    allocation of scheme assets to individual employing bodies. We have sought to place reliance

    on analytical review procedures to satisfy ourselves that there is no material misstatement in

    the authority’s accounts.

    Communication concerning financial statements to those Norfolk County Council (Draft Version) Page 5 charged with governance Audit 2002/2003

     SUMMARY REPORT

    The authority, in liaison with Norfolk County Pension Fund and other bodies participating in

    its pension scheme should liaise with the scheme’s actuary to establish appropriate

    arrangements to ensure that the attribution of scheme assets can be verified in future years.

    This is particularly important for 2003/04 as, for the first time, liabilities measured in

    accordance with FRS17 will be reflected in the authority’s balance sheet and revenue account.

Next steps

    Members are asked to note the content of this report.

Status of this report to the Council

    This report is prepared in the context of the Statement of Responsibilities of Auditors and

    Audited Bodies issued by the Audit Commission. It is prepared by appointed auditors and

    addressed to Members of the Council. It is prepared for the sole use of the audited body, and

    no responsibility is taken by auditors to any Director or officer in their individual capacity, or

    to any third party.

Communication concerning financial statements to those Norfolk County Council (Draft Version) Page 6 charged with governance Audit 2002/2003

     SUMMARY REPORT

    Draft auditor’s report

    Independent Auditor’s Report to Norfolk County Council

    I have audited the financial statements on pages 13 to 54 which have been prepared in accordance with the accounting policies applicable to local authorities as set out on pages 13 to 17.

    This report is made solely to Norfolk County Council in accordance with Part II of the Audit Commission Act 1998 and for no other purpose, as set out in paragraph 54 of the Statement of Responsibilities of Auditors and of Audited Bodies, prepared by the Audit Commission. Respective Responsibilities of the Director of Finance and Auditor

    As described on page 8 the Director of Finance is responsible for the preparation of the

    financial statements in accordance with the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2002. My responsibilities, as independent auditor, are established by statute, the Code of Audit Practice issued by the Audit Commission and my profession’s ethical guidance.

    I report to you my opinion as to whether the financial statements present fairly the financial position of the Council and its income and expenditure for the year.

    I review whether the statement on page 11 reflects compliance with the requirements of the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2002’. I report if it does not meet the requirements specified by CIPFA/LASAAC or if the statement is misleading or inconsistent with other information I am aware of from my audit of the financial statements. I am not required to consider whether the statement on internal financial control covers all risks and controls, or to form an opinion on the effectiveness of the Authority’s system of internal financial control. My review was not performed for any

    purpose connected with any specific transaction and should not be relied upon for any such purpose.

    I read the other information published with the statement of accounts and consider the implications for my report if I become aware of any apparent misstatements or material inconsistencies with the statement of accounts.

    Basis of audit opinion

    I conducted my audit in accordance with the Audit Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission, which requires compliance with relevant Auditing Standards issued by the Auditing Practices Board.

    An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Council in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Council's circumstances, consistently applied and adequately disclosed.

    I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming my opinion, I evaluated the overall adequacy of the presentation of the information in the financial statements.

    Communication concerning financial statements to those Norfolk County Council (Final Version) Page 7 charged with governance Audit 2002/2003

     SUMMARY REPORT

Opinion

    In my opinion the financial statements present fairly the financial position of Norfolk County

    Council as at 31 March 2003 and its income and expenditure for the year then ended.

    Certificate

    I have carried out the audit of the accounts in accordance with the requirements of the Audit

    Commission Act 1998 and the Code of Audit Practice issued by the Audit Commission.

    However, the audit cannot be formally concluded and an audit certificate issued until an

    objection made by a local government elector has been heard and decided. I am satisfied

    that the amounts which are the subject of the objection do not have a material effect on the

    statement of accounts.

Signature: …………………………………. Date: ………………………December 2003.

    Name: Keith Matthews………… Address: Audit Commission

     Springvale Court

     Hadleigh Road

     Sproughton

     Ipswich

     IP8 3AS

    Communication concerning financial statements to those Norfolk County Council (Final Version) Page 8 charged with governance Audit 2002/2003

APPENDICES

Communication concerning financial statements to those Norfolk County Council (Final Version) Page 9 charged with governance Audit 2002/2003

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