Agenda item

The Director of Corporate Services presented the report.  It was noted that the International Standard on Auditing (ISA) 540: Auditing Accounting Estimates and Related Disclosures was revised in December 2018 by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, quality control, and review.  The auditing standard was revised because Statement of Accounts were increasingly subject to judgements and estimations performed by management and experts on a range of items within them, as required by current accounting standards.  These changes required that auditors should understand and evaluate: “the nature and extent of oversight and governance that the entity has in place over management’s financial reporting process relevant to the accounting estimates.”  ISA 540 applied to any financial statements beginning on or after 15 December 2019 – for the Authority this meant the 2020/21 financial statements onwards.

The Audit Committee needed to understand what significant estimates would be included within the Statement of Accounts which were those that:

•        Required significant judgement by management to address subjectivity;

•        Had high estimation uncertainty;

•        Were complex to make;

•        Had, or ought to have had, a change in method, assumptions or data compared to previous periods; or

•        Involved significant assumptions.

The Statement of Accounts contained estimated figures that were based on assumptions about the future or that were otherwise uncertain.  Estimates considered historical experience, current trends or other relevant factors.  However, because balances could not be determined with certainty, actual results could be materially different from the assumptions and estimates.

It was noted that the Statement of Accounts were prepared with the underlying significant assumption of Going Concern, which meant that the Authority considers its financial position to be stable for the foreseeable future, as assessed at the most recent budget setting exercise finalised in February 2021.  Accounting standards required that management made an annual assessment of going concern, although the Code recognised that Local Authorities could not be created or dissolved without statutory prescription, the accounts must therefore be prepared on a Going Concern basis.   Management had prepared the assessment in line with requirements.

Members considered the significant Accounting Estimates for 2020/21 including the: estimated value, degree of uncertainty and methodology used for the: i) valuation of land and buildings; ii) depreciation of property and equipment; iii) valuation of both Firefighter and Local Government Pension Scheme (LGPS) liability; iv) valuation of LGPS pension asset; v) fair value measurement – private finance initiative schemes; vi) expenditure accruals – pensionability of allowances; vii) revenue accrual – s31 grant re: business rates additional reliefs in 2020/21; and vii) holiday pay expenditure accrual.

It was noted that in addition, each year Executive Board was asked to consider whether there were any transactions, events, or conditions (or changes in these) that might trigger the recognition of an additional significant accounting estimate, or the potential recognition, known as a contingent liability.  Based on the returns received from Executive Board, the contingent liabilities note had been updated to reflect the current position, but there were no further significant events or transactions identified by this process.

County Councillor Shedwick invited Mr Smith to comment on how external audit verified estimates for the valuation of land and buildings and the valuation of the pension fund.  Mr Smith advised that in terms of the valuation of land and buildings a set of indices was broadly used by chartered surveyors and these were used to compare assumptions made by obtaining valuation calculations from a sample of assets re?valued in year, and calculations and data input were checked to ensure accuracy.  He confirmed that in relation to pensions, external audit used their own expert to provide a set of data to compare assumptions and to check these were within a reasonable range.

RESOLVED: - That the report be noted and the accounting estimates as reported be endorsed.