The Audit Plan – template user guide
Contents
1. Grant Thornton The Audit Plan for Merseyside Fire amp Rescue Authority Year ended 31 March 2014 29 May 2014 Robin Baker Engagement Lead T 0161 214 6399 E robin j baker uk gt com Paul Basnett Audit Manager T 0161 214 6398 E paul s basnett uk gt com John Padfield Executive T 0161 214 6378 E john padfield uk gt com The contents of this report relate only to the matters which have come to our attention which we believe need to be reported to you as part of our audit process It is not a comprehensive record of all the relevant matters which may be subject to change and in particular we cannot be held responsible to you for reporting all of the risks which may affect the Authority or any weaknesses in your internal controls This report has been prepared solely for your benefit and should not be quoted in whole or in part without our prior written consent We do not accept any responsibility for any loss occasioned to any third party acting or refraining from acting on the basis of the content of this report as this report was not prepared for nor intended for any other purpose Contents Section 1 Understanding your business 2 Developments relevant to your business and the audit 3 Our audit approach 4 Significant risks identified 5 Other risks 6 Value for money 7 Results of interim audit work 8 Value for Money 9 Key dates 10 Fees and independence 11 Communication of audit ma2. of the Authority and how these are being consulted upon and delivered during our meetings with senior management e the AGS and the explanatory foreword to consider whether they are consistent with our knowledge carry out this work in accordance with requirements 2014 Grant Thornton UK LLP Our audit approach 1 a Understanding and the entity Understanding gt the business Understanding _ management s focus gt Evaluating the gt year s results Voyager 2014 Grant Thornton UK LLP _ the environment Creates and tailors audit programs Global audit technology Inherent Develop audit plan to risks obtain reasonable assurance that the Financial Statements a as a whole are free Significant from material risks misstatement and 3 gt prepared in all material respects Other with the CIPFA Code risks of Practice framework using our global methodology and audit software Material balances Note a An item would be considered material to the financial statements if through its omission or non disclosure the financial statements would no longer show a true and fair view Stores audit evidence Ensures compliance with International Standards on Auditing ISAs Devise audit strategy planned control reliance Extract your data y e Test controls e Substantive analytical review e Tests of detail Gene
3. other risks of material misstatement which we have identified as a result of our planning Other reasonably possible risks Description Work programme Employee Employee remuneration Work completed to date remuneration accrual understated e We have documented the processes and controls in place around the accounting for employee remuneration e We have carried out a walkthrough test to confirm the operation of controls is in line with our understanding e We have begun early substantive testing on a sample of payments to employees covering the period April December 2013 Work planned e Review of monthly trend analysis of payments to identify any unusual or irregular movements which would be investigated e Testing of the reconciliation between payroll system and general ledger e Completion of testing of a sample of employees for accuracy of payments and the agreement of employee remuneration disclosure to supporting documentation 2014 Grant Thornton UK LLP Other risks continued The auditor should evaluate the design and determine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the other risks of material
4. ber 2014 September 2014 October 2014 Final accounts Completion Visit reporting pebret Key phases of our audit 2014 Grant Thornton UK LLP Date November 2013 April 2014 January April 2014 29 May 2014 July September 2014 September 2014 September 2014 30 September 2014 Activity Planning Interim site visit Presentation of audit plan to Audit Sub Committee Year end fieldwork Audit findings clearance meeting with Director of Finance Report audit findings to those charged with governance Authority Sign financial statements opinion and Whole of Government Accounts Opinion Fees and independence Fees Fees for other services Service Fees Authority audit 43 232 Total fees excluding VAT 43 232 None Nil Our fee assumptions include Independence and ethics e Supporting schedules to all figures in the accounts We confirm that there are no significant facts or matters that impact on our independence as auditors that we are are supplied by the agreed dates and in accordance required or wish to draw to your attention We have complied with the Auditing Practices Board s Ethical with the agreed upon information request list Standards and therefore we confirm that we are independent and are able to express an objective opinion on the The scope of the audit and the Authority and its financial statements activities have not changed significantly Pull details of all fees c
5. e key messages arising will be reported in our Audit Findings report and in the Annual Audit Letter Results of interim audit work The findings of our interim audit work and the impact of our findings on the accounts audit approach are summarised in the table below Internal audit Walkthrough testing Journal entry controls 2014 Grant Thornton UK LLP Work performed and findings We have reviewed internal audit s overall arrangements in accordance with auditing standards Our work has not identified any issues which we wish to bring to your attention We also reviewed internal audit s work on the Authority s key financial systems to date We have not identified any significant weaknesses impacting on our responsibilities We have completed walkthrough tests of controls operating in areas where we consider that there is a risk of material misstatement to the financial statements Our work has not identified any issues which we wish to bring to your attention Internal controls have been implemented in accordance with our documented understanding We have reviewed the Authority s journal entry policies and procedures as part of determining our journal entry testing strategy We have reviewed and selectively tested journals posted in the period April December 2013 Conclusion Overall we have concluded that the internal audit service continues to provide an independent and satisfactory service to the Au
6. er requirements e The Authority is required to submit a Whole of Government accounts pack on which we provide an audit opinion 1 Financial pressures and the efficiency 2 Pensions agenda e Changes to the Firefighters pension e Reductions in central government funding scheme are due to be implemented from gt OF mean fire authorities need to find future April 2015 system of internal control in its Annual efficiencies e There are transitional arrangements in Governance Statement e In March 2014 Grant Thornton published a place for the introduction of the 2015 e The explanatory foreword should explain report on Fire and Rescue Collaboration scheme the most significant areas of the accounts e There are changes planned to the Local and be based on the information included Government Pension Scheme LGPS in in the financial statements 2013 14 and 2014 15 e As in previous years the Authority is required to summarise the operation of its Our response We will We will We will We will e review the Authority s performance against e discuss the impact of the proposed e assess the arrangements the Authority has e assess the amount of work required on the the 2013 14 budget including changes to the schemes on the Authority in place for the production of the AGS WGA pack consideration of performance against the savings plan as part of our work on our VfM conclusion we will assess the longer term plans
7. harged for audit and non audit services will be included in our Audit Findings report at the The Authority will make available management and conclusion of the audit accounting staff to help us locate information and We confirm that we have implemented policies and procedures to meet the requirement of the Auditing Practices to provide explanations Board s Ethical Standards 2014 Grant Thornton UK LLP Communication of audit matters with those charged with governance International Standards on Auditing ISA 260 as well as other ISAs prescribe matters which we are required to communicate with those charged with governance and which we set out in the table opposite This document The Audit Plan outlines our audit strategy and plan to deliver the audit while The Audit Findings will be issued prior to approval of the financial statements and will present key issues and other matters arising from the audit together with an explanation as to how these have been resolved We will communicate any adverse or unexpected findings affecting the audit on a timely basis either informally or via a report to the Authority Respective responsibilities This plan has been prepared in the context of the Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission www audit commission gov uk We have been appointed as the Authority s independent external auditors by the Audit Commission the body respo
8. ifications Other operating income in the Authority s accounts is likely to be significant and we will undertake audit procedures to address this risk We are also required to consider the likelihood that expenditure could be misstated due to fraudulent manipulation and we will undertake audit procedures to address this risk Work planned e Review and testing of revenue recognition policies e Sample testing of material revenue transaction streams e Testing of year end revenue and operating expenses cut off Work completed to date e Review the journal control environment to identify any control weaknesses e Review and testing of journal entries made in the period April December 2013 Further work planned e Review of accounting estimates judgments and decisions made by management e Testing of journal entries for the remainder of the year e Review of unusual significant transactions Other risks The auditor should evaluate the design and determine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the other risks of material misstatement which we have identified as a result of our planning Other reasonably pos
9. misstatement which we have identified as a result of our planning Other reasonably possible risks Property Plant amp Equipment Property Plant amp Equipment Description PPE activity not valid Revaluation measurement not correct Work programme Work completed to date We have documented the processes and controls in place around accounting for property plant and equipment We have carried out a walkthrough test to confirm the operation of controls is in line with our understanding Work planned Agreement of asset register to general ledger accounts and supporting notes Sample test of material PPE additions and disposals including compliance with capitalisation requirements Ensuring asset value of the three PFI fire stations newly operational in 2013 14 has been appropriately reflected in the balance sheet Revisit leasing arrangements in respect of Toxteth FireFit Hub considering any implications for asset accounting Work completed to date Documentation of processes and controls Work planned Review of the analysis which demonstrates that the value of assets in the Authority s balance sheet is unlikely to materially differ from the amount that would be given by a full valuation carried out on 31 March 2014 Review and testing of depreciation and impairments including evidence of review of Useful Economic Lives Other risks continued The auditor should evaluate the design and de
10. nsible for appointing external auditors to local public bodies in England As external auditors we have a broad remit covering finance and governance matters Our annual work programme is set in accordance with the Code of Audit Practice the Code issued by the Audit Commission and includes nationally prescribed and locally determined work Our work considers the Authority s key risks when reaching our conclusions under the Code It is the responsibility of the Authority to ensure that proper arrangements are in place for the conduct of its business and that public money is safeguarded and properly accounted for We have considered how the Authority is fulfilling these responsibilities 2014 Grant Thornton UK LLP Audit Audit Our communication plan plan findings Respective responsibilities of auditor and management those charged v with governance Overview of the planned scope and timing of the audit Form timing v and expected general content of communications Views about the qualitative aspects of the entity s accounting and v financial reporting practices significant matters and issue arising during the audit and written representations that have been sought Confirmation of independence and objectivity A statement that we have complied with relevant ethical requirements regarding independence relationships and other matters which might be thought to bear on independence Details of non audit work performed by Gra
11. nt Thornton UK LLP and network firms together with fees charged Details of safeguards applied to threats to independence Material weaknesses in internal control identified during the audit ka Identification or suspicion of fraud involving management and or others which results in material misstatement of the financial statements Non compliance with laws and regulations Expected modifications to the auditor s report or emphasis of matter Uncorrected misstatements Significant matters arising in connection with related parties SI SISI SIS Significant matters in relation to going concern GrantThornton 2014 Grant Thornton UK LLP All rights reserved Grant Thornton means Grant Thornton UK LLP a limited liability partnership Grant Thornton is a member firm of Grant Thornton International Ltd Grant Thornton International References to Grant Thornton are to the brand under which the Grant Thornton member firms operate and refer to one or more member firms as the context requires Grant Thornton International and the member firms are not a worldwide partnership Services are delivered independently by member firms which are not responsible for the services or activities of one another Grant Thornton International does not provide services to clients grant thornton co uk
12. onclusion is based on the following criteria specified by the Audit Commission VfM criteria Focus of the criteria The organisation has proper The organisation has robust systems and processes to manage financial risks and opportunities effectively and to secure a stable financial position that enables it to continue to operate for the foreseeable future arrangements in place for securing financial resilience The organisation has proper arrangements for challenging how it secures economy efficiency and effectiveness The organisation is prioritising its resources within tighter budgets for example by achieving cost reductions and by improving efficiency and productivity 2014 Grant Thornton UK LLP We have completed our initial risk assessment and have not identified any significant VFM risks that we need to address To enable us to issue our VFM conclusion we will update our assessment and in particular we will e assess 2013 14 financial performance the 2014 15 revenue budget assumptions and the Medium Term Financial Strategy e review the Authority s processes for monitoring the affordability of its borrowing and assessing whether the overall asset base is sustainable e consider the actions taken by the Authority to deliver significant efficiency programmes in each of the next 3 financial years 2013 14 to 2015 16 whilst maintaining strategic and operational objectives The results of our VfM audit work and th
13. ond 3 Financial pressures and efficiency agenda e The Authority is facing significant financial challenges balancing service delivery against available resources is intensified at a time of reducing budgets We will e review the Authority s financial performance against its agreed budget and monitor performance through discussions with officers and review of the Authority s papers e review the Authority s plan for maintaining financial resilience in the medium term as part of our value for money conclusion 4 Financial planning and reserves e The Medium Term Financial Strategy recognises the need to maintain general reserves to provide resilience against financial uncertainty in the current climate of reduced funding levels The level of the Authority s general and earmarked reserves is intended to decrease from 24 3m to 11m by 2017 18 We will e consider the level of reserves and how the Authority balances competing demands for reserves including avoiding redundancy and restructuring costs with the need to minimise borrowing costs as part of a financial strategy Developments relevant to your business and the audit In planning our audit we also consider the impact of key developments in the sector and take account of national audit requirements as set out in the Code of Audit Practice the code and associated guidance Developments and other requirements 3 Corporate Governance 4 Oth
14. ral audit procedures Financial statements Y e Test of detail Anal d e Substantive Report output nalyse data ETEME using relevant i to teams review parameters Conclude and report Documents processes and controls Significant risks identified Significant risks often relate to significant non routine transactions and judgmental matters Non routine transactions are transactions that are unusual either due to size or nature and that therefore occur infrequently Judgmental matters may include the development of accounting estimates for which there is significant measurement uncertainty ISA 315 In this section we outline the significant risks of material misstatement which we have identified There are two presumed significant risks which are applicable to all audits under auditing standards International Standards on Auditing ISAs which are listed below Significant risk Description The revenue cycle includes fraudulent transactions statements may be misstated due to the improper recognition of revenue Management over ride of controls Under ISA 240 it is presumed risk that the risk of management over ride of controls is present in all entities 2014 Grant Thornton UK LLP Under ISA 240 there is a presumed risk that financial Substantive audit procedures The Authority s main source of funding is its revenues from government grants and council tax precepts These will be checked to external not
15. sible risks Description Work programme Operating expenses Creditors understated or not Work completed to date recorded in the correct period e We have documented the processes and controls in place around the accounting for operating expenses We have carried out a walkthrough test to confirm the operation of controls is in line with our understanding We have begun early substantive testing on a sample of operating expense incurred in the period April to December 2013 Work planned e e 2014 Grant Thornton UK LLP Testing of the control account reconciliations Review of monthly trend analysis of payments to identify any unusual or irregular movements which would be investigated Documentation of the processes in place for month and year end accruals Cut off testing of purchase orders and goods received notes both before and after year end Completion of testing of a sample of operating expense to ensure it has been accurately accounted for and in the correct period Other risks continued The auditor should evaluate the design and determine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the
16. termine the implementation of the entity s controls including relevant control activities over those risks for which in the auditor s judgment it is not possible or practicable to reduce the risks of material misstatement at the assertion level to an acceptably low level with audit evidence obtained only from substantive procedures ISA 315 In this section we outline the other risks of material misstatement which we have identified as a result of our planning Other reasonably possible risks Description Work programme Firefighters pensions Payments to pensioners Work completed to date benefit payments incorrectly calculated e We have documented the processes and controls in place around the accounting for Fire fighters pensions e We have carried out a walkthrough test to confirm the operation of controls is in line with our understanding Work planned e Agreement of pension disclosures in the financial statements to supporting evidence e Testing a sample of Firefighters pension payments covering the period 1 April 2013 to 31 March 2014 to ensure they have been accurately accounted for and in the correct period 2014 Grant Thornton UK LLP Value for money Value for money The Code requires us to issue a conclusion on whether the Authority has put in place proper arrangements for securing economy efficiency and effectiveness in its use of resources This is known as the Value for Money V M conclusion Our VfM c
17. thority and that internal audit work contributes to an effective internal control environment at the Authority Our review of internal audit work has not identified any weaknesses which impact on our audit approach Our work has not identified any weaknesses which impact on our audit approach Our work has not identified any issues likely to adversely impact on the Authority s control environment or financial statements Results of interim audit work continued Work performed Conclusion Early substantive testing We have completed early substantive testing on operating The work will inform our audit approach for the Authority s expenditure and employee remuneration Our work to date has not accounts and contribute to the assurance for material identified any issues which we wish to bring to your attention balances Review of information technology Our information systems specialist has commenced a high level The work will inform our understanding of risk and allow us to controls review of the general IT control environment as part of the overall design procedures accordingly review of the internal controls system The work includes review of the action taken by Authority officers to ensure the preservation of system data integrity upon transfer to a new external provider of financial systems support 2014 Grant Thornton UK LLP Key dates The audit cycle January 2014 Interim audit visit August Septem
18. tters with those charged with governance 2014 Grant Thornton UK LLP Understanding your business In planning our audit we need to understand the challenges and opportunities the Authority is facing We set out a summary of our understanding below 1 Financial reporting e There have been some changes to the CIPFA Code of Practice including a clarification of the Code requirements around the timing of PPE valuations e The system of business rates retention has changed in 2013 14 which will have an impact on the Authority as a preceptor We will e review the Authority s processes for complying with the requirements of the CIPFA Code of Practice and in particular reviewing the process for ensuring asset valuations are materially correct e review the process for accounting for the Authority s share of business rates 2014 Grant Thornton UK LLP Challenges opportunities 2 Strategic Partnerships and Collaboration e Construction of the Joint Control Centre Project is underway with completion expected during the summer of 2014 e The co location of the fire and police control room functions will provide an opportunity to deliver a more efficient and effective service to the public We will e understand the Authority s progress in delivering a shared control centre with key partners including any changes in timetable to the original plan e consider the accounting impact of this in 2013 14 and bey
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