Agenda item

To present the report of Audit Wales.

The report of Audit Wales setting out the detailed audit plan for the Isle of Anglesey County Council for the 2022/23 audit year was presented for the Committee’s consideration. The Plan set out the work proposed to be undertaken in relation to the financial audit, the performance audit programme for the year along with the programme of grant certification work and audit reporting timetable and fees. The document was presented in draft version pending further discussions with the audited and inspected body.

Mr Derwyn Owen, Engagement and Audit Director for Audit Wales presented the report and provided an overview of the contents. Since the outline audit plan was presented to the Committee in June, 2023 the more detailed risk assessment work in relation to the accounts has been undertaken. Mindful that the auditors do not seek to obtain absolute assurance on the truth and fairness of the financial statements and related notes but adopt a concept of materiality, the level of materiality for the 2022/23 audit of the financial statements has been set at £2.845m. The audit planning and risk assessment work to date has identified the risk of management override of controls as the most significant financial statements risk as per Exhibit 1 of the plan. This risk is present in all entities and is not unique to Anglesey. No significant risks specific to the Isle of Anglesey County Council’s accounts were identified during the planning stage. Exhibit 2 outlines the other areas of audit focus along with the auditors’ planned response; these relate to the valuation of land and buildings, the valuation of pension fund net liability, pension scheme surpluses and issues reported in the 2021/22 audit of accounts report and how they have been addressed to minimise reoccurrence. The audit team is yet to conclude all areas of the risk assessment and should any further significant financial risks arise on completion of this work then the Section 151 Officer will be updated as will the Governance and Audit Committee via its Chair. The detailed Audit Plan will be re-issued if necessary. The programme of performance audit work remains unchanged from that set out in the outline Audit Plan in June. The Audit of Financial Statements Report 2022/23 is scheduled to be finalised and delivered by November, 2023. The proposed audit fee is set out in Exhibit 5 of the plan. Fee rates for 2023/24 have increased by 4.8% for inflationary pressures and the financial audit fee reflects a further increase of 10.2% for the impact of the revised auditing standard ISA 315 on the financial audit approach. This is in line with the industry standards nationally in the private and public sectors. Any fees not required/used will be refunded.

In considering the Plan contents, the Committee highlighted the following –

·      A discrepancy between the Welsh and English versions of the Plan with the omission from the Welsh version of the schedule of audit fees.

·      The increased audit costs, specifically the nature of the additional requirements imposed by ISA 315 that makes a rise of 10.2% necessary.

Mr Derwyn Owen referred to Appendix 1 of the Plan which sets out the key changes to ISA 315 and the additional work to the annual audit which these entailed. These include more detailed and extensive risk identification and assessment procedures, a requirement for the auditors to obtain a wider and enhanced understanding of the Council’s IT environment, a focus on exercising professional scepticism, the introduction of risk assessments that are scaleable depending on the nature and complexity of the organisation to be audited and a potentially greater use of technology in the performance of the audit.

·      The nature and occurrence of management override of controls and whether there are measures that can be taken to prevent this from happening rather than detecting it after the event as appears to be the approach as outlined in the auditors’ planned response.

Mr Derwyn Owen confirmed that management override of controls has been identified as a risk in the audit plan in the past few years and is a risk that is common to all entities. Whilst there have been no instances of it happening within the Council there have been several such occurrences across both private and public sector organisations in the UK. It is viewed as a significant risk and as such the auditors must carry out procedures to test the reliability of the financial information and statements presented. As regards prevention, the external auditor assesses the effectiveness of the Council’s controls at the end of the financial year while it is internal audit’s role to carry out that assessment on ongoing basis throughout the year in accordance with its programme of work to ensure that the controls in place are operating as they should.

·      The implications of ISA 315 for the Council in terms of additional work pressures on  Finance Service personnel and whether those have been recognised via the standards or otherwise.

Mr Derwyn Owen advised that the requirements of ISA 315 may result in a greater number of enquiries for the Council.  Audit Wales will work with the Finance Service team to expedite the audit and will discuss any increase in workload with the Section 151 Officer.

The Director of Function (Resources)/Section 151 Officer advised that the workload depends on issues identified in the course of the audit as well as the quality of the financial statements and supporting documentation submitted to the auditors. The Finance Service has endeavoured to work with Audit Wales over the past two years to improve the quality of the process and to ensure that its working papers are of a high standard and that the evidence provided to the auditors is sufficient to reduce the number of queries and/or incidence of errors and consequently, the resulting workload on staff. 

·      The likelihood that in the course of identifying and assessing the risks of material misstatements as required by ISA 315 the auditors will uncover a number of immaterial misstatements which will have to be recorded and which add to the workload and possibly the cost but may not prove significant in the context of the overall accounts. It was asked whether any course of action can be taken to avoid this happening.

Mr Derwyn Owen advised that the audit testing strategy is based on the reasonable expectation of identifying material misstatements. Whilst the nature and type of misstatement uncovered as the audit progresses is not something that the auditors have any control over it can determine the level of response as in the case of a material error the potential impact it has on the accounts or with a trivial error whether or not it can be disregarded. However, these are not matters that can be foreseen at the outset of the audit.

It was resolved to note the Detailed Audit Plan 2023.