Additional information for 2022/23 audit fees - Page 6 of 6

Appendix 1: Assumptions and mitigations that may affect the level of additional fee required at an individual body

VFM arrangements commentary

Fees will usually be within the proposed range/at the proposed level if…

No significant weaknesses have been identified in previous audits or planning
Arrangements for financial sustainability, governance and improving VFM are stable
There are no major issues in the year
The body has made only limited use of complex, unusual or innovative arrangements for service delivery (e.g. outsourcing, joint ventures, controlled companies, pooled budgets)
Any weaknesses in internal control are minor
Comprehensive and balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
The body has provided good documentation to support arrangements in most areas
The body has usually provided timely, relevant and comprehensive responses to audit queries
Timely and effective responses to interim reporting

Fees will usually be above the proposed range/proposed level if…

Significant weaknesses have been identified in previous audits or planning
There have been significant changes in arrangements for financial sustainability, governance or improving VFM
There is a major issue in the year
The body has entered into complex, unusual or innovative arrangements for service delivery
There are weaknesses in internal control other than of a minor nature
Limited and/or balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
Documentation to support arrangements is weak
Responses to audit queries are delayed and/or inadequate
There are circumstances that require consideration of interim reporting
There are circumstances that require consideration of statutory reporting
Delayed and/or ineffective responses to interim reporting

Bodies can reduce the impact on fees by…

Implementation and high-quality monitoring of implementation of agreed actions in response to previous audits
Early and open engagement on changes in arrangements and proposed complex, unusual or innovative arrangements for service delivery
Preparation of high-quality, comprehensive and balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
Preparation of high-quality documentation to support arrangements
Establishment of effective arrangements for responding to audit queries
Effective arrangements for timely and comprehensive consideration of interim reporting
Implementation of effective internal controls and in particular:
- maintenance of high quality, up-to-date documentation of internal controls
- appropriate documentation of support for, challenge in making, and reasons for major decisions
- effective communication and dialogue with the external auditor
Implementation of an effective system of financial management and in particular:
- maintenance of high quality, up-to-date documentation of risks and associated mitigation, including for risks relating to complex arrangements
- clear documentation of the financial implications of other plans and initiatives
- effective communication and dialogue with the external auditor
Implementation of an effective performance management framework and in particular:
- evidenced consideration of comprehensive performance management reports covering all relevant areas
- effective communication and dialogue with the external auditor

ISA 540

(Accounting estimates)

Fees will usually be within the proposed range/at the proposed level if…

No significant weaknesses have been identified in previous audits
No material accounting estimates other than for property, plant and equipment, pension liabilities and local taxation revenue
Arrangements for preparation of material accounting estimates are stable
The body has appropriately instructed experts to support them in preparing accounting estimates
They have validated the information provided to experts
They have considered the advice of experts and documented clearly the reasons for the approach that they have adopted in respect of material estimates
Any weaknesses in internal control relevant to material accounting estimates are minor
The body has provided good documentation to support material accounting estimates
The body has provided timely, relevant and comprehensive responses to audit queries
Timely and effective responses to interim reporting

Fees will usually be above the proposed range/proposed level if…

Significant weaknesses have been identified in previous audits
There are material accounting estimates other than for property, plant and equipment, pension liabilities and local taxation revenue
There have been significant changes in arrangements for preparing material accounting estimates
Experts have not been instructed or inadequately instructed in respect of material accounting estimates
Information provided to experts has not been validated
There is no documented consideration of the advice offered by experts and the reasons for the material estimates chosen
There are weaknesses in internal control relevant to material accounting estimates other than of a minor nature
Documentation to support accounting estimates is weak
Responses to audit queries relating to accounting estimates are delayed and/or inadequate
There are circumstances that require consideration of non-standard reporting in respect of accounting estimates
Delayed and/or ineffective responses to interim reporting

Bodies can reduce the impact on fees by…

Implementation and high-quality monitoring of implementation of agreed actions in response to previous audits
Early and open engagement on changes in arrangements for preparation of accounting estimates
Engagement and appropriate instruction of experts in respect of accounting estimates
Validation of information provided to experts in respect of accounting estimates
Documentation of their consideration of advice offered by experts in respect of accounting estimates and the reasons for material estimates chosen
Preparation of high-quality documentation to support material accounting estimates
Establishment of effective arrangements for responding to audit queries
Effective arrangements for timely and comprehensive consideration of interim reporting
Implementation of effective internal controls and in particular:
- systematic documentation of estimates by reference to criteria in the auditing standard
- early engagement of appropriate experts where in-house expertise is not available
- preparation of appropriate, relevant instructions by reference to the financial reporting framework
- demonstrable quality assurance of data used for preparing estimates
- evidence review of estimates by senior officers and audit committee or equivalent

ISA 240

(The auditor’s responsibilities relating to fraud in an audit of financial statements)

Fees will usually be within the proposed range/at the proposed level if…

No significant weaknesses have been identified in previous audits
Arrangements are stable
There are no major incidents in the year
The body has provided good documentation to support arrangements
The body has provided timely, relevant and comprehensive responses to audit queries

Fees will usually be above the proposed range/proposed level if…

Significant weaknesses have been identified in previous audits
There have been significant changes in arrangements
There is a major incident in the year
There are weaknesses in internal control
Documentation to support arrangements is weak
Responses to audit queries are delayed and/or inadequate

Bodies can reduce the impact on fees by…

Implementation of effective internal controls and in particular:
- clear documentation of arrangements for prevention, detection and investigation of fraud
- established arrangements for reporting of suspected frauds by employees and other parties
- established arrangement for investigation of fraud
- assurance over the operation of arrangements for prevention, detection and investigation of fraud

ISA 315

(Identifying and assessing the risks of material misstatements)

Fees will usually be within the proposed range/at the proposed level if…

The body has a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures
The body does not have inherent risks for assertions relating to transactions, balances and disclosures that are unusual for the type of body in question
The body has clear documentation of the controls for assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
There are no significant changes in the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
The body does not have a history of weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
No significant weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures are identified relevant to the year of audit

Fees will usually be above the proposed range/proposed level if…

The body does not have a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures or the assessment is incomplete and/or out of date
The body has inherent risks for assertions relating to transactions, balances and disclosures that are unusual for the type of body in question
The body does not have clear documentation of the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls) or the documentation is incomplete and/or out of date
There are significant changes in the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
The body has a history of weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
Significant weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosure are identified relevant to the year of audit

Bodies can reduce the impact on fees by…

Preparing and keeping up to date a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures
Preparing and keeping up to date clear documentation of the controls for assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
Promptly responding to and addressing any weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
Implementation of effective internal controls and in particular:
- comprehensive documentation of controls over transactions, account balances and disclosures
- comprehensive documentation of IT controls, including general IT controls