The Prinzessin Victoria Luise

This time last year at the Reading Borough Council (RBC) audit and governance committee, council auditors Ernst & Young announced that if they didn’t complete their audit of 2016/17 accounts by 30 April 2018, they would have to pull out until August because their resources were needed elsewhere. A year later and the audit is still ongoing.

RBC officers told the 16 April 2019 audit and governance (A&G) committee that they had delivered the ‘hopefully’ final set of accounts (which dealt with all outstanding queries) to Ernst and Young (EY) on 17 April.

RBC resources director Jackie Yates was ‘hopeful’ that the accounts would be signed off by the end of April.

Despite the expectation that the accounts were nearing completion in January, there were further delays caused by issues with the valuation of council houses.

The sad voyage of council accounts for the year ending 31 March 2017 began with the publication of an unaudited draft for public inspection for 3 July 2017. Indications that this was going to be a rough ride soon appeared when the council issued an updated version about a month later.

Catching up with the annual statutory timetable was never going to be plain sailing, given that the previous year’s accounts, the first to be audited by EY, had been signed off about two months late.

But it was full steam ahead until the end of September, when the expected approval of the accounts at the scheduled A&G committee did not happen. Auditors told the A&G committee that they could not make progress because of the lack of audit journal transactions (used to make adjustments or corrections to accounts) and they did not expect to complete until July 2018.

After navigating many other obstacles which rose unexpectedly in their path, their final destination may be in sight; it is not a palm-fringed isle of peace and tranquility but the barren rock of qualified accounts [see below]. Qualification of local authority accounts is an exceptional and rare occurrence.

The accounts will be qualified on the grounds of uncertainty of the debtors (amounts owed to RBC) and creditors (amounts owed by RBC) and consequently the income and expenditure figures included in the accounts.

We can expect a qualification to the 2017/18 accounts as well, and possibly 2018/19, because the debtors and creditors at the end of 2016/17 are the same as at the beginning of 2017/18.

The report to the committee states:

Specific additional work has been undertaken by staff to fully verify the closing 2017/18 debtor and creditor balances to ensure as far as possible this qualification does not continue into 2018/19.

The extended audit also comes at additional cost. The audit fee is running at about £400,000 and there have been additional property valuation charges of £139,000.

A member of the public, Colin Lee, asked a question about the full cost of auditing the 2016/17 accounts. A&G committee vice-chair Councillor Richard Davies replied “we believe the investment in improving the accounts for 16/17 will be beneficial for future years.”

EY partner Maria Grindley had little to add in her update to the committee. She said that final audit results report would be issued when the opinion on the accounts had been signed.

The accounts for the year ended 31 March 2018 (2017/18) cannot be finalised until the 2016/17 accounts are closed. EY have said that their audit of the 2017/18 accounts will not be completed until later in the year due to commitments to other clients, and these will take place concurrently with the audit of the 2018/19 accounts.

  1. RBC audit and governance committee 16 April 2019 papers & webcast
  2. 30 April – has the audit been completed?
  3. No we are not there yet!
  4. Auditors finally deliver report on council finances
  5. “To travel hopefully is a better thing than to arrive.” Robert Louis Stevenson
  6. Prinzessin Victoria Luise

Categories of Adverse audit opinion

i. Qualified ‘except for’ opinion – limitation of scope

The financial statements give a true and fair view, except for the effect of a matter where the auditor was unable to obtain sufficient evidence. For example, the auditor considers the accounting records for a material transaction or balance in the accounts to be inadequate.

ii. Qualified ‘except for’ opinion – disagreement
The financial statements give a true and fair view, except for the effect of a matter where there was a material disagreement between the auditor and audited body about how the matter was treated in the financial statements.

iii. Adverse opinion
There was a disagreement that was so material, or pervasive, the financial statements as a whole were misleading or incomplete.

iv. Disclaimer of opinion
The auditor was not able to express an opinion, because they could not obtain evidence to such an extent that the financial statements as a whole could be misleading or incomplete.