Agenda item

External Audit Plan

This document provides an overview of the planned scope and timing of the

statutory audit of Brent Council (‘the Authority’) for those charged w ith governance.

Minutes:

Sophia Brown (Senior Manager, Grant Thornton - External Audit) introduced the paper which provided an overview of the planned scope and timing of the statutory audit of Brent Council for those charged with governance. She directed Members’ attention to the key matters impacting Grant Thornton’s audit approach of the Authority (page 29 of the Agenda pack), among which included the wider economy and political uncertainty; the adoption of IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers); and the implications of Brexit. Ms Brown noted that Grant Thornton had identified significant risks related to the revenue cycle including fraudulent transactions (rebutted); management override of Authority controls; valuation of land and buildings; and valuation of the Pension Fund liability.

 

Danielle Swain (Audit Executive, Grant Thornton – External Audit) reported on the audit plan of the Pension Fund. She said that Brexit could have a significant impact on the funding and investment strategies of pension schemes, and defined benefit schemes were likely to face a number of regulatory issues and uncertainties. Therefore, the Pension Fund would need to manage potential risks by developing contingencies for different outcomes. The significant risk identified for the Pension Fund was incorrect valuation of Level 3 investments. Ms Swain explained that Level 3 investments were difficult to value and the process involved a significant degree of estimation as no comparative investments existed.

 

Members heard that Grant Thornton had determined financial statement materiality to be based on 1.85% (previous year figure – 1.06%) of the Authority’s gross expenditure of the group and the Authority for the financial year and had considered ownership structures, controls and business environment. Therefore,  materiality at the audit planning stage had been set to £20 million (previous year’s figure - £12 million) for the group and the Authority and £8 million (previous year’s figure - £12 million) for the Pension Fund which equated to 1% of the previous’ year net assets for the Pension Fund. The trivial levels[1] had been set to £1 million and £400,000 for the group and the Authority and the Pension Fund respectively and any discrepancies exceeding the trivial level would be reported to the Audit and Standards Advisory Committee.

 

The Committee questioned why materiality levels had been changed and Ms Brown responded that each audit firm used its own methodology to determine materiality. The current levels had been set up taking into consideration ownership structures, controls and the business environment, and reviewing the level of errors from the prior year audit of the financial statements. In response to a Member’s question whether materiality could be set at 1%, Conrad Hall (the Council’s Chief Finance Officer) emphasised that while it was in the Committee’s power to request materiality to be at 1%, but this was likely to increase the audit fee (currently - £153,684; previous year’s figure - £199,590) and, therefore, such a suggestion should be carefully considered prior to making a formal decision. 

 

Members enquired how much of the information presented in the External Audit Plan had been specific to Brent. Ms Brown said that a significant proportion of the report mirrored reports presented to other local authorities audited by Grant Thornton. However, information related to value for money and materiality had been tailored to the profile of individual councils – for example, local authorities with low levels of reserves were likely to have lower materiality. This led to questions about the way the level of materiality at Brent compared to other local authorities and the impact pf Brexit on other councils. Ms Brown said that Brent’s materiality would not be similar to the ones of other local authorities as each council would have been impacted by different events in the previous year. It was pointed out that Brent had taken more actions, such as organising a ‘Time to Talk’ event and presenting a paper to Full Council, to prepare for Brexit in comparison to other councils. 

 

RESOLVED that the contents of the External Audit Plan be noted.

 



[1] The International Standard on Auditing (ISA) 260 defines as ‘clearly trivial’ matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any quantitative or qualitative criteria.

Supporting documents: