1. finance
2. accounting and auditing

EAST AYRSHIRE COUNCIL
GOVERNANCE AND SCRUTINY COMMITTEE – 26 MARCH 2015
AUDIT SCOTLAND – ANNUAL AUDIT PLAN 2014/15
Report by the Executive Director of Finance and Corporate Support
PURPOSE OF REPORT
1.
To introduce the Annual Audit Plan for 2014/15, submitted by Audit Scotland,
to the Governance and Scrutiny Committee.
BACKGROUND
2.
Audit Scotland are the appointed External Auditors of East Ayrshire Council for
the current five year audit cycle (2011/12 to 2015/16).
3.
Based on their analysis of the risks facing the Council in 2014/15, Audit
Scotland has provided an audit plan outlining their approach to the audit of the
2014/15 financial statements in order to provide an opinion on whether they
give a true and fair view of the financial position of the Council at 31 March
2015.
4.
Members will recall that two reports are submitted to the Governance and
Scrutiny Committee following the audit:
 Report to those charged with governance (ISA 260)
 Annual report on the audit
5.
This year, as part of the streamlining of the audit approach, a single combined
report will be produced by Audit Scotland. This will be presented to the
September meeting of the Governance and Scrutiny Committee
6.
The Audit Manager from Audit Scotland will be in attendance to introduce the
Annual Audit Plan to Members.
RECOMMENDATIONS
7.
It is recommended that the Governance and Scrutiny Committee;
i.
Note the contents of the report.
Alex McPhee
Executive Director of Finance and Corporate Support
12 March 2015
Any person wishing further information should contact Craig McArthur, Head of
Finance (Telephone 01563 576513)
East Ayrshire
Council
Annual Audit Plan
2014/15
Prepared for East Ayrshire Council
March 2015
Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. We help the Auditor
General for Scotland and the Accounts Commission check that organisations spending public money use it properly, efficiently and effectively.
Contents
Summary
2
Introduction ..........................................................................................2
Summary of planned audit activity ........................................................2
Responsibilities
Key contacts
4
Responsibility of the appointed auditor .................................................4
Fiona Mitchell Knight, Assistant Director
Responsibility of Executive Director of Finance and Corporate Support4
[email protected]
Format of the accounts .........................................................................4
Paul Craig Senior Audit Manager
Audit Approach
5
[email protected]
Our approach .......................................................................................5
Materiality .............................................................................................6
Reporting arrangements .......................................................................7
Neil Cartlidge, Senior Auditor
[email protected]
Quality control ......................................................................................8
Independence and objectivity ...............................................................9
Audit issues and risks
10
Audit Scotland
4th floor (South Suite)
8 Nelson Mandela Place
Financial statement issues and risks .................................................. 10
Glasgow
Wider Dimension Risks ...................................................................... 12
G2 1BT
Summary assurance plan ................................................................... 12
Fees and resources
13
Switchboard: 0131 625 1500
Audit fee ............................................................................................. 13
Audit team .......................................................................................... 13
Appendix I: Planned audit outputs
15
Appendix II: Significant audit risks
16
Website: w w w .audit-scotland.gov.uk
Summary
Introduction
1.
Our audit is focused on the identification and assessment of
the risks of material misstatement in East Ayrshire Council’s
financial statements.
2.
This report summarises the key challenges and risks facing
East Ayrshire Council and sets out the audit work that we
propose to undertake in 2014/15. Our plan reflects:
3.

the risks and priorities facing East Ayrshire Council

current national risks that are relevant to local
circumstances

the impact of changing international auditing and
accounting standards

our responsibilities under the Code of Audit Practice as
approved by the Auditor General for Scotland

Issues brought forward from previous audit reports.
The Charities Accounts (Scotland) Regulations 2006 specifies
the accounting and auditing rules for Scottish registered
charities. Irrespective of the size of the charity, as a
consequence of the interaction of section 106 of the Local
Government (Scotland) Act 1973 with the regulations, a full
East Ayrshire Council - Annual Audit Plan 2014/15
audit is required of all registered charities where the local
authority is the sole trustee.
4.
East Ayrshire Council has seven trusts having charitable status
with total assets of £0.458 million. Accordingly, we will perform
the audit of the council's charitable trusts in parallel with the
audit of the council's financial statements.
Summary of planned audit activity
5.
Our planned work in 2014/15 includes:

an audit of the financial statements and provision of an
opinion on whether:

they give a true and fair view of the state of affairs of
East Ayrshire Council as at 31 March 2015 and its
income and expenditure for the year then ended

the accounts have been properly prepared in
accordance with the Local Government (Scotland) Act
1973 and the 2014/15 Code of Practice on Local
Authority Accounting in the United Kingdom (the
Code)

an audit of the financial statements and provision of an
opinion for the charitable trusts where the local authority is
the sole trustee.

reporting the findings of the shared risk assessment
process in a Local Scrutiny Plan. This will summarise
2
identified scrutiny risks and/or any changes to the Local
Area Network’s (LAN’s) assessment since last year.

a review and assessment of East Ayrshire Council's
governance and performance arrangements in a number of
key areas including:

Review of adequacy of Internal Audit

ICT governance arrangements

Annual Governance Statement

provision of an opinion on a number of grant claims
and returns, including Whole of Government
Accounts

reporting of National Fraud Initiative arrangements
and results.
East Ayrshire Council - Annual Audit Plan 2014/15
3
Responsibilities
6.
legislation and the Code of Practice on Local Authority
Accounting in the United Kingdom (the Code). This means:
The audit of the financial statements does not relieve
management or the Governance and Scrutiny Committee, as
the body charged with governance, of their responsibilities.
Responsibility of the appointed auditor
7.
Our responsibilities, as independent auditor, are established by
the Local Government (Scotland) Act 1973 and the Code of
Audit Practice, and guided by the auditing profession’s ethical
guidance.
8.
Auditors in the public sector give an independent opinion on
the financial statements. We also review and report on the
arrangements set in place by the audited body to ensure the
proper conduct of its financial affairs and to manage its
performance and use of resources. In doing this, we aim to
support improvement and accountability.
Responsibility of Executive Director of
Finance and Corporate Support
9.

maintaining proper accounting records

preparing financial statements which give a true and fair
view of the state of affairs of East Ayrshire Council as at 31
March 2015 and its expenditure and income for the year
then ended

Ensuring the financial statements are prepared, approved,
and published in accordance with the timescales and
requirements of the Local Authority Accounts (Scotland)
Regulations 2014.
Format of the accounts
10.
The financial statements should be prepared in accordance
with the Code which constitutes proper accounting practice.
East Ayrshire Council prepares a Whole of Government
Accounts consolidation pack annually for the Scottish
Government. To enable summarisation common accounting
principles and standard formats should be used.
It is the responsibility of the Executive Director of Finance and
Corporate Support (Depute Chief Executive, Economy and
Skills from 1 April 2015), as the appointed "proper officer", to
prepare the financial statements in accordance with relevant
East Ayrshire Council - Annual Audit Plan 2014/15
4
Audit Approach
12.
Our approach
11.
Our audit approach is based on an understanding of the
characteristics, responsibilities, principal activities, risks and
governance arrangements of East Ayrshire Council. We also
consider the key audit risks and challenges in the local
government sector generally. This approach includes:

understanding the business of East Ayrshire Council and
the risk exposure which could impact on the financial
statements

assessing the key systems of internal control, and
considering how risks in these systems could impact on the
financial statements

identifying major transaction streams, balances and areas
of estimation and understanding how East Ayrshire Council
will include these in the financial statements

assessing and addressing the risk of material misstatement
in the financial statements

determining the nature, timing and extent of the audit
procedures necessary to provide us with sufficient audit
evidence as to whether the financial statements give a true
and fair view.
East Ayrshire Council - Annual Audit Plan 2014/15
13.
We have also considered and documented the sources of
assurance which will make best use of our resources and allow
us to focus audit testing on higher risk areas during the audit of
the financial statements. The main areas of assurance for the
audit come from planned management action and reliance on
systems of internal control. Management action being relied
on for 2014/15 includes:

comprehensive closedown procedures for the financial
statements accompanied by a timetable issued to all
relevant staff

clear responsibilities for preparation of financial statements
and the provision of supporting working papers

delivery of unaudited financial statements to agreed
timescales with a comprehensive working papers package

completion of the internal audit programme for 2014/15.
Auditing standards require internal and external auditors to
work closely together to make best use of available audit
resources. We seek to rely on the work of internal audit
wherever possible and as part of our planning process we
carry out an early assessment of the internal audit function.
Internal audit is provided by the internal audit section within the
council. Overall, we concluded that the internal audit service
operates in accordance with Public Sector Internal Audit
Standards (PSIAS) and has sound documentation standards
and reporting procedures in place.
5
14.
15.
We plan to place formal reliance on aspects of the work of
internal audit in the following areas, to support our audit
opinion on the financial statements:

Creditors core system review

NDR billing and collection

4 weekly payroll (aspects of)
In respect of our wider governance and performance audit
work we also plan to review the findings and consider other
areas of internal audit work including:

Ayrshire Roads Alliance - costing information

Health and Social Care Integration - governance and
internal control

Housing benefit improvement action plan

Performance indicators

ICT - data protection

Community asset transfers

Statutory performance indicators
Specifically with regard to the financial statements, we assess
the materiality of uncorrected misstatements, both individually
and collectively.
17.
Based on our knowledge and understanding of East Ayrshire
Council we have set our planning materiality at 1% of gross
expenditure. For 2014/15 planning materiality is £4.030
million.
18.
Planning the audit solely to detect individually material
misstatements overlooks the fact that the aggregate of
individually immaterial misstatements may cause the financial
statements to be materially misstated, and leaves no margin
for possible undetected misstatements. Performance
materiality (which, as defined, is one or more amounts) is set to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements in the
financial statements exceeds materiality for the financial
statements as a whole. For 2014/15 performance materiality
has been set at £3.026 million.
19.
We will report, to those charged with governance, the
Governance and Scrutiny Committee, all misstatements
greater than £0.040 million.
20.
In addition, an inaccuracy which would not normally be
regarded as material in terms of monetary value may be
important for other reasons (for example the failure to achieve
a statutory requirement, or an item contrary to law). In the
Materiality
16.
International Standard on Auditing 320 provides guidance on
the concept of materiality. We consider materiality and its
relationship to audit risk when planning the nature, timing and
extent of our audit and conducting our audit procedures.
East Ayrshire Council - Annual Audit Plan 2014/15
6
event of such an item arising, its materiality has to be viewed in
a narrower context; such matters would normally fall to be
covered in an explanatory paragraph in the independent
auditor’s report.
Controller of Audit requires audit completion and issue of an
independent auditor's report (opinion) by 30 September each
year.
24.
The authority is required to publish on its website its signed
audited annual accounts, and the audit certificate, by 31
October. The local authority is also required to publish a copy
of the accounts of its subsidiaries. The annual audit report is
required to be published on the website by 31 December.
25.
An agreed timetable is included at Exhibit 1 below which takes
account of submission requirements and planned Governance
and Scrutiny Committee dates.
Reporting arrangements
21.
22.
23.
The Local Authority Accounts (Scotland) Regulations 2014
require that the unaudited annual accounts are submitted to
the appointed external auditor no later than 30 June each year.
The regulations also require that a local authority (or a
committee of that authority whose remit includes audit or
governance) must meet to consider the unaudited Annual
Accounts as submitted to the auditor. This must be done no later
than 31 August. We note that the unaudited accounts will be
taken to the Council in June 2015.
Exhibit 1: Financial statements audit timetable
Key stage
Date
Local authorities must publish the unaudited accounts on their
websites and give public notice of the inspection period. This
should include the registered charitable trusts the council is
responsible for administering.
Testing and review of internal control systems and
January to June
transactions
2015
Meetings with officers to clarify expectations of
By 31 March
The 2014 regulations require the local authority (or a
committee whose remit includes audit or governance) to meet
by 30 September to consider whether to approve the audited
annual accounts for signature. Immediately after approval, the
annual accounts require to be signed and dated by specified
members and officers and then provided to the auditor. The
Planned Council approval of unaudited financial
East Ayrshire Council - Annual Audit Plan 2014/15
working papers and financial system reports
25 June
statements
Submission of unaudited council financial
By 30 June
statements with working papers package
7
Key stage
Date
Submission of unaudited charitable trust financial
By 30 June
draft reports are expected within three weeks of submission. A
copy of all final agreed reports will be sent to the Chief
Executive, Depute Chief Executive (Economy and Skills),
relevant senior manager, internal audit and Audit Scotland's
Performance Audit and Best Value Group where applicable.
statements with working papers package
Progress meetings with lead officers on emerging
As required
issues
throughout the
audit process
Latest date for final clearance meeting with the
15 September
Depute Chief Executive (Economy and Skills)
2015
Agreement of unsigned financial statements for
17 September
Governance & Scrutiny Committee agenda, and
2015
27.
We will provide an independent auditor’s report to East
Ayrshire Council and the Accounts Commission that the audit
of the financial statements has been completed in accordance
with applicable statutory requirements. As part of streamlining
our audit approach, this year the Annual Audit Report will be
combined with the ISA 260 report. As a result, the Annual
Audit Report will be issued by 30 September which is one
month earlier than previous years.
28.
All annual audit reports produced are published on Audit
Scotland's website: (www.audit-scotland.gov.uk).
29.
Planned outputs for 2014/15 are summarised at Appendix I.
issue of combined ISA 260 report to those charged
with governance and Annual Audit Report.
Governance and Scrutiny Committee date
24 September
2015
Independent auditors report signed
By 30
September 2015
Latest date for submission of unaudited whole of
28 August 2015
government accounts to external audit
Latest date for signing of WGA return
26.
Quality control
30.
3 October 2015
Matters arising from our audit will be reported on a timely basis
and will include agreed action plans. Draft management
reports will be issued to the responsible Head of Service and
relevant officers to confirm factual accuracy. Responses to
East Ayrshire Council - Annual Audit Plan 2014/15
International Standard on Quality Control (UK and Ireland) 1
(ISQC1) requires that a system of quality control is established,
as part of financial audit procedures, to provide reasonable
assurance that professional standards and regulatory and legal
requirements are being complied with and that the independent
auditor’s report or opinion is appropriate in the circumstances.
The foundation of our quality framework is our Audit Guide,
8
which incorporates the application of professional auditing,
quality and ethical standards and the Code of Audit Practice
issued by Audit Scotland and approved by the Accounts
Commission. To ensure that we achieve the required quality
standards, Audit Scotland conducts peer reviews and internal
quality reviews and has been subject to a programme of
external reviews by the Institute of Chartered Accountants of
Scotland (ICAS).
31.
Auditor General, who serves as Audit Scotland’s Ethics
Partner.
33.
Auditing and ethical standards require the appointed auditor to
communicate any relationships that may affect the
independence and objectivity of audit staff. We are not aware
of any such relationships pertaining to the audit of East
Ayrshire Council.
As part of our commitment to quality and continuous
improvement, Audit Scotland will periodically seek your views
on the quality of our service provision. We do, however,
welcome feedback at any time and this may be directed to the
engagement lead, Fiona Mitchell Knight.
Independence and objectivity
32.
Auditors appointed by the Accounts Commission must comply
with the Code of Audit Practice. When auditing the financial
statements, auditors must also comply with professional
standards issued by the Auditing Practices Board (APB) and
those of the professional accountancy bodies. These
standards impose stringent rules to ensure the independence
and objectivity of auditors. Audit Scotland has in place robust
arrangements to ensure compliance with these standards
including an annual “fit and proper” declaration for all members
of staff. The arrangements are overseen by the Assistant
East Ayrshire Council - Annual Audit Plan 2014/15
9
Audit issues and
risks
34.
Based on our discussions with staff, attendance at committee
meetings and a review of supporting information we have
identified the following main risk areas for East Ayrshire
Council. We have categorised these risks into financial and
wider dimension risks. The financial statements risks, which
require specific audit testing, are summarised at Appendix II.
will cover each service income area. This is in addition to our
coverage of RSG and NDR income received during the year.
36.
Management override of controls: ISA 240 requires that
audit work is planned to consider the risk of fraud, which is
presumed to be a significant risk in any audit. ISA 240 states
that audit procedures should be responsive to risks related to
management override of controls. We will design and perform
audit procedures to address these risks within East Ayrshire
Council.
37.
Equal Pay Provision: The 2013/14 financial statements
contained a provision covering all known equal pay claims.
The potential liability resulting from equal pay claims remains
uncertain and is subject to the outcome of several national test
legal cases. There is a risk that the ultimate cost to the council
is significantly different from that provided in the financial
statements. Officers, in consultation with the council's legal
service, will review the evidence available at the time of
preparing the financial statements, to determine the adequacy
of the provision and ensure that it is valued appropriately. We
will continue to monitor developments throughout the year and
review the equal pay provision as part of the 2014/15 financial
statements audit process.
38.
Group Accounts: The Code of Practice for Local Authority
Accounting has been amended to reflect the adoption of the
following group accounts standards
Financial statement issues and risks
35.
Risk of fraud where income streams are significant:
Auditing standards (ISA 240 The auditor’s responsibility to
consider fraud in an audit of financial statements) requires
auditors to presume a risk of fraud where income streams are
significant. East Ayrshire Council receives a significant amount
of funding from the Scottish Government; however £173.891
million is received from other sources, including service
income, Council tax and Capital Grants. The complexity of
income means there is an inherent risk that income could be
materially misstated. It is our opinion that the council has
strong mitigating controls in place to reduce this risk. To
reinforce this view, we will be undertaking full controls system
testing of accounts receivable, and transaction testing which
East Ayrshire Council - Annual Audit Plan 2014/15
10

IFRS 10 Consolidated financial statements

IFRS 11 Joint arrangements

IFRS 12 Disclosure of interests in other entities

IAS 28 Investments in associates and joint ventures (as
amended).
39.
The council intend to carry out a reassessment of its group
boundary to ensure there are no further consolidations and
disclosures required as a result of the amendments to the
Code. We will discuss the work completed with management to
ensure any impact on the council is reflected in the financial
statements.
40.
Opencast Coal Mining Sites: The council remain satisfied,
based on legal advice taken, that there is no legal duty on the
Council to restore sites. The council are also satisfied that it
continues to fulfil its statutory role under the Environmental
Protection Act 1990 in respect of any nuisance or
contamination issues which may arise.
41.
Bond monies have been received during 2014/15 as a result of
settlements made in relation to individual sites. The council
intend to tender work to carry out restoration work to the value
of the bonds received. We will review the accounting treatment
of bond monies received and expended, and will continue to
monitor the council’s actions to address the impact following
the liquidation of the coal companies.
East Ayrshire Council - Annual Audit Plan 2014/15
42.
The Controller of Audit is currently considering the impact of
the liquidation of the open cast mine companies across
Scotland, including at East Ayrshire Council. A briefing report
on these issues is planned for discussion with the Accounts
Commission in March 2015.
43.
Ayrshire Roads Alliance: East Ayrshire and South Ayrshire
councils jointly launched the Ayrshire Roads Alliance (ARA) on
1 April 2014 to deliver a range of roads services. East Ayrshire
is the lead authority and relevant employees from South
Ayrshire transferred under TUPE. The council provides roads
services for both councils and recharges South Ayrshire for
work completed for them in accordance with their business
plan.
44.
The council’s costing system and financial ledger have been
set up to distinguish financial transactions between East or
South Ayrshire Council, in accordance with work done and as
agreed in their budgets/business plans. We will review work
carried out by internal audit in this area and will conduct year
end testing of a sample of transactions, and also work with
management to ensure any additional disclosure requirements
around income and expenditure are included within the
financial statements.
45.
Housing Benefits Performance: Audit Scotland carried out its
third risk assessment of the council’s benefits service in 2014.
This highlighted that the council experienced very slow
11
processing performance in 2013. The processing delays
resulted in overpayments of benefit that the council could not
claim subsidy for. These issues are incorporated within an
improvement action plan which includes 15 risks that have
been agreed with management. This is currently being
implemented and will be reviewed by internal audit. We will
review the outcome of this.
46.
Transport Infrastructure Assets: From 2015/16,
Infrastructure assets require to be measured at depreciated
replacement cost. This is a requirement of the Code. Although
not affecting the current audit year, management should
already be preparing for this significant change in accounting
requirements, and should be compiling, and assessing the
reliability, of the necessary base information. This represents a
change in accounting policy so will require full restatement of
2015/16 figures and presentation of opening balance sheet
amounts as at 1 April, 2015. Failure by authorities to begin
preparations in 2014/15 represents a risk to them having the
necessary information in the required timescale. We will be
monitoring the council’s plans to prepare for this change.
Wider Dimension Risks
47.
The council has demonstrated that it has arrangements in
place to address a range of issues which we plan to continue
to monitor during the course of our audit work. These include:
East Ayrshire Council - Annual Audit Plan 2014/15

Progress with health and social care integration and
governance arrangements.

The cost, impact and savings generated from voluntary
severance.

Identifying efficiencies required to achieve a balanced
budget and monitoring adherence of these.

Preparing the accounts of registered charitable trusts, and
determining the appropriate course of action regarding
those which were dormant in 2013/14.

Establishing and reporting the information required by the
annual governance statement.
Summary assurance plan
48.
Within these identified risk areas there is a range of more
specific risks and these are summarised at Appendix II. In
most cases, actions to manage these risks are either planned
or already underway within the organisation. Details of the
sources of assurance that we have received for each of these
risks and any audit work we plan to undertake is also set out in
Appendix II. In the period prior to the submission of the
unaudited financial statements, we will liaise with senior
officers on any new or emerging issues.
12
Fees and resources
Audit fee
49.
50.
51.
Over the past four years, Audit Scotland has reduced audit
fees by 23.5% in real terms, exceeding our 20% target. Due to
further refinement of our audit approach we have been able to
restrict the increase in audit fees for 2014/15 to 1% which, in
real terms, represents a 0.6% reduction at 2014 price levels.
In determining the audit fee we have taken account of the risk
exposure of East Ayrshire Council, the management
assurances in place, and the level of reliance we plan to take
from the work of internal audit. We have assumed receipt of a
complete set of unaudited financial statements and
comprehensive working papers package by 30 June 2015.
The agreed audit fee for the 2014/15 audit of East Ayrshire
Council is £282,500. Our fee covers:

the costs of planning, delivering and reporting the annual
audit including auditor’s attendance at committees

your organisation’s allocation of the cost of national
performance audits and statutory reports by the Accounts
Commission

a contribution towards functions that support the local audit
process (e.g. technical support and coordination of the
East Ayrshire Council - Annual Audit Plan 2014/15
National Fraud Initiative), support costs and auditors’ travel
and subsistence expenses.
52.
In addition, there will be a fee of £2,100 for the audit of the 7
registered charitable trusts that are administered by East
Ayrshire Council.
53.
Where our audit cannot proceed as planned through, for
example, late receipt of unaudited financial statements or being
unable to take planned reliance from the work of internal audit,
a supplementary fee may be levied. An additional fee may
also be required in relation to any work or other significant
exercises outwith our planned audit activity.
Audit team
54.
Fiona Mitchell Knight, Assistant Director, Audit Services is your
appointed auditor. The local audit team will be led by Paul
Craig who will be responsible for day to day management of
the audit and who will be your primary contact. Details of the
experience and skills of our team are provided in Exhibit 2.
The core team will call on other specialist and support staff as
necessary.
13
Exhibit 2: Audit team
Name
Experience
Fiona Mitchell-Knight BA
Fiona took up post as Assistant Director of Audit in August 2007. Fiona has over 20 years experience of public sector audit
(Hons) FCA
with Audit Scotland.
Assistant Director of audit
services (certifying auditor)
Paul Craig CA
Paul joined Audit Scotland in 1994. Before this, he worked for accountancy firms in the private sector providing a variety of
Senior Audit Manager
audit, accounting, and business services roles. Since joining Audit Scotland, Paul has managed a variety of clients in the
(client manager)
local government and central government sector. He also undertook a one year secondment to SWIA.
Neil Cartlidge BA (Hons)
Neil worked in the financial services industry for ten years before joining Audit Scotland in 2010. Since joining he has worked
CPFA
on a range of audits across both Local Government and the NHS.
Senior Auditor
Louise Dodds BA (Hons)
Louise joined Audit Scotland in 2011 and is currently training for a professional accountancy qualification with ICAS.
Professional Trainee
Paul Bonfanti BA (Hons)
Paul graduated from the University of Stirling in 2010 with a BA (Hons) in Finance. He joined Audit Scotland in 2014 and is
Professional Trainee
currently training for a professional accountancy qualification with ICAS.
East Ayrshire Council - Annual Audit Plan 2014/15
14
Appendix I: Planned audit outputs
The diagram below shows the key outputs planned for East Ayrshire Council in 2014/15.
Combined ISA 260 / Annual Audit
Report: Draws significant matters arising
from our audit to those charged with
governance prior to the signing of the
independent auditor’s report.
Review of adequacy of
internal audit:
Our assessment of the
internal audit function.
November
2014
December
2014
January
2015
February
2015
Major Capital Investments follow up
report: Provides an assessment of the
council's management of its capital
investment programme, based primarily
on the areas covered by the
recommendations from the national
report.
March
2015
April
2015
May
2015
Internal Controls Reporting:
The overall conclusion from our
testing of the operation of the key
financial controls.
East Ayrshire Council - Annual Audit Plan 2014/15
June
2015
July
2015
August
2015
September
2015
October
2015
Independent auditors’ report:
Opinion on the financial
statements.
Whole of government
accounts (WGA):
Audit opinion issued.
15
Appendix II: Significant audit risks
We undertake a risk-based audit whereby we focus on those areas where we have identified a risk of material misstatement in the accounts.
This section shows how our audit approach focuses on the risks we have identified through our planning procedures. ISA 315 Identifying and
assessing the risks of material misstatement through understanding the entity and its environment defines a significant risk as “an identified and
assessed risk of material misstatement that, in the auditor’s judgement, requires special audit consideration.”
In this section we identify a range of risks facing East Ayrshire Council, the related source of assurance received and the audit work we
propose to undertake to secure additional assurance. The management of risk is the responsibility of East Ayrshire Council and its officers,
with the auditor’s role being to review the arrangements put in place by management. Planned audit work, therefore, will not necessarily
address all residual risks.
Audit Risk
Source of assurance
Assurance procedure
Audit risk of material misstatement in financial statements
Significant income streams

East Ayrshire Council receives a significant
amount of income in addition to SG funding.

Sound controls arrangements have been

Full controls testing of Accounts Receivables.
reported in previous years of the audit.

Detailed testing of revenue transactions across
Internal audit reviews.
each service area.
The extent and complexity of income means

Testing of significant Grants received.
there is an inherent risk that income could be

Focused testing of the Council Tax Income
materially misstated in accordance with
Account.
ISA240.
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Audit Risk
Management override of controls
Source of assurance

ISA 240 highlights that management is in a
unique position to perpetrate fraud because

Assurance procedure
A sound system of budgetary control,

Detailed testing of journal entries.
including regular budget monitoring.

Review of accounting estimates for bias.
Regular updates of Standing Orders and

Evaluating significant transactions that are outside
of their ability to manipulate accounting
Financial Regulations, which require approval
records and prepare fraudulent financial
by the Full Council.
the normal course of business.

statements by overriding controls that
Focussed testing of the regularity and cut-off
assertions during the financial statements audit.
otherwise appear to be operating effectively.
Equal Pay Provision
The potential liability resulting from equal pay
claims remains uncertain and is subject to
the outcome of several national test legal
cases.

Officers, in consultation with the council's legal

We will continue to monitor developments
service, will review the evidence available at
throughout the year and review the equal pay
the time of preparing the financial statements,
provision as part of the 2014/15 financial
in relation to legal decisions, to review the
statements audit process.
adequacy of the provision and ensure that is it
valued appropriately.
There is a risk that the ultimate cost to the
council is significantly different from that
provided in the financial statements.
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Audit Risk
Group Accounts
There may be changes to the group structure
arising from amendments to The Code of
Practice for Local Authority Accounting,
Source of assurance

Officers have made appropriate arrangements

We will continue to liaise with officers during the
for assessing the impact of group account
course of the year regarding the group accounts
standards, and reflecting any changes within
arrangements.
the Group financial statements.
reflecting the adoption of the following group
accounts standards;

Assurance procedure
IFRS 10 Consolidated financial

During our audit of the council's financial
statements we will ensure group account
disclosures meet with our understanding of the
new accounting standards.
statements

IFRS 11 Joint arrangements

IFRS 12 Disclosure of interests in other
entities

IAS 28 Investments in associates and
joint ventures (as amended).
There is a risk that the council and its group
are not properly presented in the financial
statements.
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Audit Risk
Open Cast Coal Sites
Source of assurance

Bond monies are now being received as a
result of settlements made in relation to
The council have developed a business case
Assurance procedure

Work will be carried out during the financial
highlighting what should be done with Bond
statements audit to verify the treatment of the
monies as they are received.
bond monies received and any expenditure at
related sites.
individual sites.

There is a risk that Income received and the
Income received not spent will be verified to
ensure it is appropriately reflected in the financial
costs incurred at relevant sites are not
statements.
appropriately accounted for within the
financial statements.
Ayrshire Roads Alliance (ARA)

relate to either East or South Ayrshire
Council, in accordance with work done and

transactions relating to each party.
The Council will need to ensure the accurate
processing of financial transactions that
A separate ledger has been set up to identify

Internal Audit plan to carry out work as part of
We will conduct year end testing of on a sample of
Ayrshire Roads Alliance transactions.

We will work with management to ensure any
their 2014/15 audit plan. This includes a
additional disclosure requirements around income
review of the “roads” costing system.
and expenditure is included within the financial
agreed budgets/business plans.
There is a risk that inaccurate coding of ARA
transactions may lead to a misrepresentation
statements.

We will review the outcome of work carried out by
internal audit.
of the financial performance of the venture.
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Audit Risk
Housing Benefits Performance
Source of assurance

The council has previously experienced
processing delays and incurred
overpayments of benefit that it could not

An improvement action plan has been agreed
Assurance procedure

We will review the outcome of the internal audit
and is being addressed.
follow up of the benefits audit improvement action
Internal audit will follow up the improvement
plan.
action plan.
claim subsidy for. An improvement action
plan has been agreed with management. If
this is not effectively implemented there is a
risk of further backlogs in service and losses
in subsidy.
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