Peter Worth: The year-end looms and lessons are being learned

by Guest
in Blogs · Technical
— 30 May, 2018

Councils up and down the country are closing their accounts with early lessons becoming apparent, writes Peter Worth.

Under the Accounts and Audit Regulations 2015, English local authorities are expected to have their 2017–18 statement of accounts prepared, audited and published by 31 July, a reduction of two months (33%) on previous years. Changes are obviously being implemented in different ways at different authorities, but some common themes and early learning is starting to emerge.

These can be summed up under four separate headings: Leadership, process, capacity and co-operation, and external audit.

Leadership

If year-end closedown is not seen as a priority by senior management, either the deadlines will not be achieved or the quality of the end-product will suffer. The statement of accounts should be seen as a corporate priority, because it explains how the authority has spent taxpayers money.

Successful section 151 officers “walk the talk” by:

Allowing key staff to focus on closure and not distracting them with other tasks in this important period.
Leading, not just attending, meetings to plan closedown work and monitor progress made to date.
Providing strategic direction on complex and potentially contentious accounting issues.
Fostering good working relationships with the external auditors at director/audit manager level — this pays dividends when unexpected problems crop up late in the day.

Process

First of all, start early. Prior year comparatives, accounting policies, and around half of all disclosure notes can all be drafted and audited well in advance of the year end. Secondly, avoid unnecessary effort by taking the following steps:

Keep journal postings up to date, clear suspense accounts regularly and reconcile bank accounts and feeder systems monthly.
Use estimation techniques to simplify accruals, provisions, overhead re-allocations and similar calculations.
Apply materiality levels and de-minimis thresholds intelligently to avoid unnecessary work and to “de-clutter” core statements and disclosure notes.

Capacity

Following eight years of austerity many back-office services in local government are running at not much more than minimum staffing levels and have insufficient headroom to deal with the additional workload year-end closure represents.

Take a pragmatic approach to staffing needs and recruit accordingly. Increasingly, local authorities are buying-in short-term capacity to provide specialist skills or improve team resilience.

An alternative approach is using existing resources more flexibly. Some year-end tasks are complex, but many disclosure notes can be prepared by anyone with basic numeracy and spreadsheet skills.

Managing a cast of thousands does take time initially but this reduces as they gain confidence, and most employees will welcome the opportunity to try something new.

All finance staff, including budget holders and treasury management teams, should expect to be involved in closedown.

Co-operation with external audit

Spare a thought for the auditors. Practitioners, in most cases, will only have one set of accounts to worry about, whereas an external audit team might have five or six.

Inevitably, clients who provide good quality raw material and respond quickly to audit queries are expecting to receive earlier certificates and opinions. Auditors also seem to be trying to save time by looking to clients to provide audit evidence and accounting views that they might previously have obtained for themselves, or referred back to specialist technical teams.

Working pro-actively with the local audit team to resolve outstanding issues and avoid unnecessary delays, will be key to meeting the new deadlines this year so I suggest the following:

Operate a no surprises policy: Hold early meetings to discuss complex or contentious issues and any proposed changes to the accounts, working papers or key personnel.
Document the basis of any judgements exercised and assumptions made when preparing the accounts, and the rationale for any changes in accounting policies.
Be prepared to draft, at short notice, briefing notes on any technical issues arising. This forces you to understand the technicalities and provides the auditor with a much clearer answer to the question being raised.
Provide a range of calculations for estimated accruals and provisions so that auditors can confirm these represent the average, or most likely outcome.
Evidence all quality assurance and review processes undertaken at pre-audit stage so that auditors can rely on this work to reduce their own levels of testing.
Prepare comprehensive working papers that provide a clear audit trail and demonstrate that key code requirements have been met.

And finally, don’t forget to manage the on-site audit process. Nominate a key contact point who will take on responsibility for ensuring that audit queries and requests for further information are dealt with promptly (and comprehensively) and that changes to the accounts are processed as agreed.

Good luck.