Agenda item

For the Committee to receive and consider the Indicative External Audit Plan (including Pension Fund) for the year ending 31 March 2025.

Sophia Brown (Key Audit Partner - Grant Thronton) introduced a report providing the Committee with an update on progress with completion of the initial planning for the 2024-25 audit of the Council’s financial statements and Brent Pension Fund. 

In presenting the indicative audit plan for the London Borough of Brent report the Committee noted:

• The key developments identified as impacting on the current audit approach which included the proposals for reform of the local audit system, the wider national context in relation to the economic, social and health challenges impacting on local government alongside the local context in relation to the financial position in Brent and impact arising from the new accounting standards and reporting developments including IFRS16.
• The backstop arrangements for the publication of audited financial statements for the year ended 31 March 2025 had been set as 27 February 2026.
• The scope of the audit process and outline of significant risks to be considered which had included management of override controls, valuation of land and buildings as well as council dwellings, IFRS16 leases implementation and risk of fraud in revenue and expenditure recognition.
• The planning financial statement materiality had been determined as £22.624m (PY £16.1m) for the Group and £22.524m (PY£16.1m) for the Council, which equated to approximately 2% of the prior year gross operating costs.  In addition, members were advised the External Auditors were required to report uncorrected omissions or misstatements other than those which were ‘clearly trivial’ to those charged with governance. Clearly trivial had been set at £1.131m (PY £0.830m) for the Group and £1.126m (PY £0.805m) for the Council and with a specific lower materiality of £20,000 per individual, for senior officer remuneration and termination benefits.
• At the time of preparing the report it was reported that Grant Thornton had not concluded the detailed VFM planning and risk assessment procedures with a  further update to be provided for the Committee on the outcome of the planning procedures, resulting risk assessment and planned responses to identified risks of significant weaknesses (including those relating to the Council’s financial resilience) at the next Audit & Standards Advisory Committee meeting in July 2025.  The Committee was advised this would also include consideration of the Council’s self-referral to the Regulator of Social Housing as a potential additional significant weakness under the VFM work.
• The update provided on progress against prior year audit recommendations including the management actions identified in response on which a final update would be included as part of the External Audit Annual Report due to be presented to the Committee in September 2025 as well as scope of the IT audit strategy.
• The initial outline of audit logistics and timescales as detailed on page 41 of the report with the initial planning and risk assessment audit visit having taken place in April 2025 and final visits scheduled from July to September 2025.

The Chair thanked Sophie Brown for the update prior to seeking comments from the Committee with the following issues highlighted:

• Further details were sought on the inclusion of the Council’s self-referral to the Regulator for Social Housing as an issue for potential consideration under the VFM review and any delays likely to be incurred in the VFM audit process as a result, given the timescale for completion of the compliance audit and establishment of the Performance Improvement Plan.  In outlining the reasons for consideration of this as a potential weakness in terms of the wider VFM review, Sophia Brown advised this related to the impact on the arrangements in place across the Council for securing economy, efficiency and effectiveness and to ensure that proper arrangements were in place for the conduct of business in terms of necessary oversight and governance controls around the management of resources and data.  At this stage it was not anticipated the inclusion of this work as an additional area of review would impact on the final timescale for competing the Annual External Audit and VFM report by September 2025.

• In response to a query, further clarification was provided on the basis of the determination outlined in relation to materiality and its impact on the audit scope.  In noting the audit fees also outlined within the report, confirmation was provided (in relation to ongoing concerns expressed by members on the need to monitor and keep any fee variations under review) that the current fee did not include the additional work that may be required as a result of the change in accounting standards and reporting relating to IFRS16.  Whilst recognising that the audit fee was set through PSAA as part of their national procurement exercise, members remained keen to ensure this was kept under close review.

With no further issues raised the Committee then moved on to consider the indicative plan for the audit of Brent’s Pension Fund, which was presented by Asad Khan (Pension Fund Engagement Manager, Grant Thornton).

In presenting the indicative audit plan the Committee noted:

• The key national and local context impacting on the audit approach with the Plan remaining largely consistent with that undertaken in previous years.
• The scope of the audit process and outline of significant risks to be considered which had included management override of control, valuation of Level 3 investments and the revenue cycle including fraudulent transactions – rebutted.
• The determination of planning materiality at £23.9 million (PY £18.6 million) for the Pension Fund, which equated to 1.9% of the gross investment assets as of 31 March 2024.  A lower specific planning materiality had been determined for the Fund Account of £6.4 million (PY £5.9 million), which equated to 10% of prior year gross expenditure on the fund account.  In addition, members were advised that the External Auditors were obliged to report uncorrected omissions or misstatements other than those which are ‘clearly trivial’ to those charged with governance which had been set at £1.1 million (PY £930,000).
• The update provided on progress against prior year audit recommendations including the management actions identified in response as well as scope of the IT audit strategy.
• The initial outline of audit logistics and timescales as detailed on page 10 of the report with the initial planning and risk assessment audit visit having taken place in between February & March 2025 and final visits scheduled from July to September 2025.
• The outline of the audit fee, which members were advised would be subject to the Fund delivering a good set of financial statements and working papers and no significant new financial reporting matters arising that required additional time and/or specialist input.

The Chair thanked Asad Khan for the update prior to seeking comments from the Committee with the following issues highlighted:

• Further details were sought in relation to the potential risk identified in relation to the valuation and security of Level 3 investments.  In response Asad Khan advised that whilst this was not related to a specific issue the risk identified reflected the nature of Level 3 investment valuations given their lack of observable inputs. The valuations had therefore been assessed as representing a significant accounting estimate by management in the financial statements due to the size of the balance (£122.7 million as of 31 March 2024) and the sensitivity of the estimate to any change in key assumptions hence their identification as a potential significant risk.

With no further questions or comments raised, the Chair concluded the discussion and thanked Sophia Brown and Asad Khan for their update and work in support of the audit process. The Committee then RESOLVED to note the indicative audit plans for the London Borough of Brent and Brent Pension Fund.