Agenda item

The Committee heard from the External Auditor, Debra Chamberlain, who introduced the report. The Committee was directed to the introduction which outlined the audit strategy in terms of materiality, significant risks, and other key elements. It was noted that the methodology for the value-for-money conclusion followed the approach detailed in the report, with a risk assessment scheduled for completion in the coming months. Confirmation of audit independence was provided, with reaffirmation of independence continuing throughout the audit process.

Badar Abbas, External Auditor, continued the presentation explaining that the materiality threshold was set at £1.2 million, with an audit misstatement threshold of £60,000. It was explained that any adjustments exceeding this amount would be reported in the year-end audit report. Four significant risks were highlighted; firstly, the valuation of land and buildings, valued at £30 million, was identified as a risk due to the complexity of the valuation process conducted by external valuers. Secondly, the valuation of investment properties, valued at £23 million remained a focus area, although no substantial changes in underlying risk factors were reported compared to the previous year. Thirdly, the valuation of the local government pension scheme was highlighted due to the complexity of actuarial assumptions, requiring the engagement of a specialist pension team and in-house actuaries to assess the reasonableness of estimates. Lastly, the Auditor stated that management override of controls was acknowledged as an inherent risk in any audit, and specific procedures were designed to detect potential material instances of fraud, though no fraud risk factors had been identified for the Council to date.

Another risk was highlighted by the Auditor, namely the adoption of International Financial Reporting Standards (IFRS 16) for the financial year 2024-25. This had been flagged as an additional audit risk, given the challenges of first-time adoption for councils. The assessment remained ongoing, with any changes to be communicated in the final audit report. Questions were invited from Members of the Committee.

Responding to a question from the Committee, the Auditor emphasised that the risk assessment had been based on the previous year’s financial statements, which recorded the value of land and building assets at £30 million. Due to the significant valuation and the complex process involved, it was confirmed that the risk would remain significant. The final audit report was expected to include a review of the valuations for the 2024-25 period, detailing the results of the audit procedures undertaken in response to this risk.

Questions were raised by a Committee Member regarding materiality, noting a considerable increase in the level set since the previous year. In response to the Committee’s concerns the Auditor explained that the previous year had marked the first audit of the Council which had required extensive planning and risk assessment. It was stated that no significant misstatements or concerning control recommendations had been identified, prompting a review and adjustment of materiality levels. The Committee was reassured that the threshold had not been raised to the maximum permissible level of three percent of expenditure, as a more gradual adjustment was preferred.

Clarification was sought by a Member of the Committee regarding the distinction between triviality and materiality. In response, the Auditor explained materiality was set at £1.2 million, and that any misstatement above £60,000 would be reported, with assessments conducted to determine its severity. Additionally, misstatements below £60,000 could be qualitatively reported if deemed relevant to users of the accounts. A Committee Member later reiterated the value and importance of transparent communication between the External Auditors and Members of the Committee regarding financial misstatements.

The Chairman noted that some Councillors, particularly those who expressed a lack of familiarity with financial matters, often found concepts such as materiality, triviality, and misstatements challenging. A request was made regarding the provision of explanatory documents to ensure Councillors and members of the public had accessible guidance to allow them to fully understand the documents. 

Clarification was sought regarding the relevance of the term ‘corporate reporting’ featured in the report. In response, the Auditor explained that feedback had been provided to the Audit Team, with plans to enhance local government relevance in future reports. The Auditor then confirmed that the final phase of the audit would commence at the end of July 2025.

Having been moved and seconded, on being put to the vote, it was unanimously

RESOLVED that the External Audit Strategy Memorandum Plan for 2024/25 be approved.