Statement of responsibilities of auditors and audited bodies from 2023/24 audits

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Audit of the financial statements

Responsibilities of the audited body

17. The responsibilities of audited bodies are derived from the Code of Audit Practice, the Accounts and Audit regulations 2015 (the AA Regulations), the Local Government Act 2003, and the Code of Practice on local authority accounting published by CIPFA/LASAAC.

18. The responsibilities of the audited body in relation to the financial statements are to:

  • put in place, and review the effectiveness of, a system of internal control, including arrangements to ensure the regularity and lawfulness of transactions;
  • maintain proper accounting records;
  • prepare financial statements that give a true and fair view of the financial position of the body and its expenditure and income and that are in accordance with applicable laws, regulations and accounting policies; and
  • properly prepare financial statements in accordance with the:
    • CIPFA/LASAAC code of practice on local authority accounting in the United Kingdom;
    • The Accounts and Audit Regulations 2015 (A&A Regulations).

19. An audited body’s financial control systems must include measures to:

  • ensure that the financial transactions of the authority are recorded as soon as, and as reasonably practicable:
  • to enable the prevention and detection of inaccuracies and fraud; and
  • to ensure that risk is appropriately managed

20. The primary responsibility for the prevention and detection of fraud and other irregularities rests with those charged with governance of the audited body and its management.

21. The audited body must undertake an effective internal audit to evaluate the effectiveness of its risk management, control and governance processes, taking into accounts public sector internal auditing standards or guidance.

22. The audited body must conduct a review of the effectiveness of the system of internal control and prepare an annual governance statement.

23. The audited body must prepare a narrative statement including comment on its financial performance and economy, efficiency and effectiveness in its use of resources over the financial year.

24. The audited body may also be required to prepare schedules or returns to facilitate the preparation of consolidated accounts such as HM Treasury’s Whole of Government Accounts.

25. A local authority that is the administering authority for a local authority pension fund must prepare pension fund financial statements and an annual report on the pension fund for each financial year. These financial statements must give a true and fair view of:

  • the financial transactions of its pension fund during the year; and
  • the amount and disposition of the fund’s assets and liabilities, other than liabilities to pay pensions and other benefits after the end of the scheme year.

Preparation of the statement of accounts

26. Audited bodies are expected to follow Good Industry Practice and applicable recommendations and guidance from CIPFA and, as applicable, other relevant organisations as to proper accounting procedures and controls, including in the preparation and review of working papers and financial statements.

27. In preparing their statement of accounts, audited bodies are expected to:

  • prepare realistic plans that include clear targets and achievable timetables for the production of the financial statements;
  • ensure that finance staff have access to appropriate resources to enable compliance with the requirements of the applicable financial framework, including having access to the current copy of the CIPFA/LASAAC Code, applicable disclosure checklists, and any other relevant CIPFA Codes.
  • assign responsibilities clearly to staff with the appropriate expertise and experience;
  • provide necessary resources to enable delivery of the plan;
  • maintain adequate documentation in support of the financial statements and, at the start of the audit, providing a complete set of working papers that provide an adequate explanation of the entries in those financial statements including the appropriateness of the accounting policies used and the judgements and estimates made by management;
  • ensure that senior management monitors, supervises and reviews work to meet agreed standards and deadlines;
  • ensure that a senior individual at top management level personally reviews and approves the financial statements before presentation to the auditor; and
  • during the course of the audit provide responses to auditor queries on a timely basis.

28. If draft financial statements and supporting working papers of appropriate quality are not available at the agreed start date of the audit, the auditor may be unable to meet the planned audit timetable and the start date of the audit will be delayed.

Publication of the statement of accounts

29. The audited body’s responsibilities for publishing the statement of accounts and other related materials are specified by the Accounts and Audit Regulations 2015 (A&A Regulations).

30. The audited body must approve the statement of accounts in accordance with the timetable and programmes specified in s9 of the A&A Regulations. The responsible financial officer for the audited body must, on behalf of the audited body in the following order:

  • Sign and date the statement of accounts and confirm that it presents a true and fair view of:
    • The financial position of the audited body at the end of the financial year to which it relates; and
    • The audited body’s income and expenditure for the financial year.
  • Commence the period for the exercise of public rights and notify the appointed auditor of the date on which that period commenced.

31. At the conclusion of the period for the exercise of public rights, and before the audited body approves the statement of accounts the responsible financial officer for the audited body must re-confirm on behalf of the audited body that they are satisfied that the statement of accounts presents a true and fair view of:

  • The financial position of the audited body at the end of the financial year to which it relates; and
  • The audited body’s income and expenditure for the financial year.

32. The audited body must in the following order:

  • Consider, either by way of a committee or by the members meeting as a whole, the statement of accounts;
  • Approve the statement of accounts by a resolution of that committee or meeting
  • Ensure that the statement of accounts is signed and dated by the person presiding at the committee or meeting at which that approval is given.

33. In accordance with s10 of the A&A Regulations the audited body must publish (which must include publication on the authority’s website) by the specified publishing date:

  • The statement of accounts together with any certificate or opinion entered by the auditor;
  • The annual governance statement; and
  • The narrative statement.

34. Where an audit of accounts has not been concluded before the specified publishing date the audited body must publish a notice stating that it has not been able to publish the statement of accounts and the reasons for this.

35. The auditor’s annual report should be considered by the authority meeting in full or as a committee of the authority as soon as reasonably practicable after it has been received. The authority must publish the auditor’s’ annual report following that consideration. The auditor’s annual report is an audit letter for the purposes of compliance with the A&A Regulations.

36. Where the audited body publishes its financial statements on its website or distributes them by e-mail or other electronic means, it is responsible for ensuring that the publication presents accurately the financial statements and the auditor’s opinion on those financial statements. This responsibility also applies to the presentation of any financial information published in respect of prior periods.

37. The auditor’s report on the financial statements should not be reproduced or referred to electronically in any form other than as part of the financial statements without their prior agreement as to the manner and context in which it is reproduced or referred to.

38. The examination of the controls over the electronic publication of audited financial statements is beyond the scope of auditors’ responsibilities in relation to the financial statements and the auditor cannot be held responsible for changes made to audited information after the initial publication of the financial statements and the auditor’s opinion and the auditor’s annual report.

Responsibilities of the auditor

39. Where an audit of accounts has not been concluded before the specified publishing date the audited body must publish a notice stating that it has not been able to publish the statement of accounts and the reasons for this.

40. The auditor should undertake work to support the provision of their audit report to the audited body. In respect of their audit of the financial statements, the auditor’s report should include the following components:

  • Opinion on the audited body’s financial statements:
    • whether the financial statements give a true and fair view of the financial position of the audited body and its expenditure and income for the period in question; and
    • whether the financial statements have been prepared properly in accordance with the relevant accounting and reporting framework as set out in legislation, applicable accounting standards or other direction.
  • Opinion on other matters:
    • whether other information published together with the audited financial statements is consistent with the financial statements; and
    • where required, whether the part of the remuneration report to be audited has been properly prepared in accordance with the relevant accounting and reporting framework.
  • Matters related to going concern (ISA(UK)570):
    • a statement if they have concluded that the s151 Officer’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
    • a statement whether the auditor has not identified a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt about the Authority’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.

41. The auditors of bodies that administer pension funds are also required to give a separate opinion on the part of the administering authority’s financial statements that relates to the accounts of the pension fund.

42. Where auditors are unable to issue their opinion on the financial statements before the specified publishing date they should notify the audited body and provide information to enable publication of the notice required by s10(2) of the A&A Regulations.

Audit Approach

43. Auditors should plan and perform their audit in compliance with the requirements of the Code and with relevant professional standards issued by the Financial Reporting Council.

44. Those standards require the auditor to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures that the auditor considers necessary, to obtain audit evidence about the amounts and disclosures in the financial statements.

45. In addition, an audit includes the evaluation of the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the audited body, as well as evaluating the overall presentation of financial statements.

46. Auditors’ work should be risk-based and proportionate and designed to meet the auditor’s statutory responsibilities, applying professional judgement to tailor their work to the circumstances of the audited body and the audit risks to which they give rise. Auditors should also consider carefully the practical and resource implications for the audited body when framing recommendations arising from their work, conduct their work economically, efficiently and effectively, and in as timely a way as possible.

47. Auditors should adopt a constructive approach to their work with the audited body. They must share and discuss their audit plan at an early stage with the audited body. They should build effective coordination arrangements with internal audit, using the work of internal audit where, in the auditor’s judgement and in line with professional standards, it is appropriate to do so.

48. Auditors examine selected transactions and balances on a test basis and assess the significant estimates and judgements made by the audited body in preparing the annual accounts. In carrying out their work, auditors are required to exercise professional scepticism. They should obtain and document such information and explanations as they consider necessary to provide sufficient, appropriate evidence in support of their judgements.

49. Auditors evaluate significant financial systems, and the associated internal financial controls, for the purpose of giving their opinion on the annual accounts. However, they do not provide assurance to audited bodies on the operational effectiveness of specific systems and controls or the wider system of internal control. Where auditors identify any weaknesses in such systems and controls, they draw them to the attention of the audited body, but they are not expected to identify all weaknesses that may exist.

50. Auditors should be mindful of the activities of inspectorates and other bodies and take account of them where relevant to avoid duplication and ensure that the demands on audited bodies are managed effectively. In so doing, the auditor is not required to carry out procedures to assess the quality of, or re-perform, the work of inspectorates and other bodies, except where it would be unreasonable not to do so, for example, to provide assurance in accordance with auditing standards issued by the Financial Reporting Council in support of the audit opinion on the financial statements.

51. Auditors also review for consistency other information that is published by the audited body alongside financial statements, such as an annual report. If auditors have concerns about the consistency of any such information they should report them to those charged with governance.

52. In meeting their responsibilities, auditors may request written confirmation of representations from management on specific aspects of the audit such as matters that could not be corroborated by normal audit evidence.

Materiality

53. Auditors’ work should be planned and performed to enable them to provide reasonable assurance that the financial statements are free of material misstatement and give a true and fair view. In the context of auditing, materiality is an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. A matter is material if its omission would reasonably influence the decisions of an addressee of the report; likewise, a misstatement is material if it would have a similar influence. Materiality may also be considered in the context of any individual primary statement within the financial statements or of any individual items included in them. Materiality is not capable of general mathematical definition as it has both qualitative and quantitative aspects.

54. The assessment of materiality will assist in determining the nature, timing and extent of the audit procedures. The nature and extent of the work performed should take account of the auditor’s understanding of the business of the entity, and the auditor’s assessment of the entity’s reporting, accounting and internal control systems.

Annual Governance Statement

55. Auditors review whether the annual governance statement has been presented in accordance with relevant requirements and report by exception if it does not meet these requirements or if it is misleading or inconsistent with other information of which the auditor is aware. In doing so, auditors take into account knowledge of the audited body gained through their work in relation to the annual accounts and through their work in relation to the body’s arrangements for securing economy, efficiency and effectiveness in the use of its resources.

56. Auditors are not required to consider whether the annual governance statement covers all risks and controls, nor are auditors required to express a formal opinion on the effectiveness of the audited body’s corporate governance procedures or risk and control procedures.

Fraud, compliance with laws and regulations and other irregularities

57. Auditors’ work is planned and performed to enable them to obtain reasonable assurance that the statement of accounts taken as a whole are free from material misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit there is an unavoidable risk that some material misstatements may not be detected within the statement of accounts even though the audit is properly planned and performed in accordance with the ISAs (UK).

58. If the auditor has identified a fraud or has obtained information that indicates that a fraud may exist, the auditor should communicate those matters, unless prohibited by law or regulation, on a timely basis to the appropriate level of management in order to inform those with primary responsibility for the prevention and detection of fraud of matters relevant to their responsibilities. The auditor shall communicate, unless prohibited by law or regulation, with those charged with governance any other matters related to fraud that are, in the auditor’s judgment, relevant to their responsibilities.

59. Auditors are required to report identified or suspected non-compliance with law or regulation to an appropriate authority outside the entity in circumstances where it is required by law, regulation or relevant ethical requirements.

Fee

60. PSAA will specify the scale fee for an individual audit in accordance with s16 of the AP Regulations.

61. The audit scale fee is calculated on the basis that the draft financial statements, and detailed working papers, are provided to an agreed timetable and are of an acceptable standard. The arrangements for varying the scale fee are set out in s17(2) of the AP Regulations.

62. If substantial additional work is required by the auditor as result of an audited body not preparing its financial statements in line with good industry practice as set out in this statement of responsibilities, then a fee variation may be payable subject to the requirements of s17(2) of the Appointing Person Regulations.

63. Where the auditor intends to propose to PSAA that an additional fee is required they must:

  • provide to the audited Body and PSAA an explanation of the circumstances leading to this request (including whether the proposed variation is of a one-off or ongoing nature or, if both, the balance of the two elements);
  • confirm to PSAA if the audited Body is in agreement with the proposed variation and the potential increase or decrease in the audit fee payable by the authority.

64. Where it appears to PSAA on the basis of information supplied by the auditor, and following discussion with the audited body, that the work involved in a particular audit was substantially more or less than envisaged by the scale fee then as appointing person PSAA may determine and charge a fee which is larger or smaller than the scale fee.

65. The auditor must not invoice the authority for an additional fee until it has been determined by PSAA. The fee is lawfully payable to PSAA but collected by the auditor for administrative efficiency.

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