CAIRNGORMS NATION­AL PARK AUTHORITY

Audit & Risk Com­mit­tee Paper 3 Annex I 08/03/2019

Grant Thornton

Cairngorms Nation­al Park Authority

Extern­al Audit Plan for the fin­an­cial year end­ing 31 March 2019

Audit and Risk Com­mit­tee 8 March 2019

DRAFT

Joanne Brown Engage­ment Leader

John Boyd Seni­or Manager

©2019 Grant Thornton UK LLP | Cairngorms Nation­al Park Author­ity | March 2019

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Our audit at a glance

Per­form­ance mater­i­al­ity is set at 75% and trivi­al is 5% of mater­i­al­ity. This is con­sist­ent with pri­or year and reflects min­im­al audit adjust­ments in pri­or year and our under­stand­ing Cairngorms Nation­al Park Author­ity (‘the Author­ity’) in a year three of our audit cycle.

Plan­ning mater­i­al­ity is set at 2% of oper­at­ing expendit­ure (£120,000) based on ²⁰¹⁷⁄₁₈ audited inform­a­tion. This is based on our assess­ment of what mis­state­ment either indi­vidu­ally or in aggreg­ate could be sig­ni­fic­ant as to be mis­lead­ing to the users of fin­an­cial statements.

Sig­ni­fic­ant audit risks are: man­age­ment over­ride of con­trols; the risk of fraud in rev­en­ue as set out in Inter­na­tion­al Stand­ards on Audit­ing (ISAs UK); and risk of fraud in expendit­ure as set out in prac­tice Note 10.

An audit under­pinned by qual­ity and adding value to you

The Author­ity is the lead body for the Tomin­toul & Glen­liv­et Land­scape Part­ner­ship and Account­able Body for Cairngorms ​‘LEAD­ER’, Caper­cail­lie Frame­work and the Great Place Badenoch Pro­ject. As pro­ject lead, the Author­ity makes advances to pro­ject applic­ants which are in turn reclaimed from fun­ders there is a risk that such funds may not be allow­able under the terms of the pro­ject and . in such instances the author­ity would fall liable for the costs incurred. As part of our audit we will focus on the recov­er­ab­il­ity of advance bal­ances at the year end.

Our audit is under­taken in accord­ance with the Audit Scot­land Code of Audit Prac­tice and reflects the wider scope nature of pub­lic audit. In accord­ance with Audit Scot­land guid­ance, we con­sider the Author­ity to be a smal­ler body for the pro­poses of wider scope respons­ib­il­it­ies. There­fore the focus of our work will be on fin­an­cial sus­tain­ab­il­ity and gov­ernance state­ment disclosures.

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Con­tents

Sec­tion	Page
1. Over­arch­ing prin­ciples of our audit	4
2. Audit approach and materiality	5
3. A risk based audit methodology	6
4. Wider scope audit – smal­ler body approach	7

Appen­dices:

Appendix	Page
1. Key audit deliv­er­ables and our team	9
2. Audit process	10
3. Fees and independence	11
4. Fraud	12
5. Respect­ive responsibilities	13
6. Tech­nic­al updates	14
7. Com­mu­nic­a­tion of audit mat­ters to those charged with governance	16

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Over­arch­ing prin­ciples of our audit

Our audit is risk based and under­taken in accord­ance with the Inter­na­tion­al Stand­ards on Audit­ing (ISAs) (UK) and the Audit Scot­land Code of Audit Prac­tice 2016 (‘the Code’).

Our over­all object­ive is a effect­ive, qual­ity-focused extern­al audit which adds value through wider insights and chal­lenge. Our audit found­a­tions are:

✓ pro­fes­sion­al scep­ti­cism ✓ a focus on audit risks and key areas of man­age­ment judge­ment ✓ Deliv­er­ing a qual­ity audit through our exper­i­enced pub­lic sec­tor audit team, use of data ana­lyt­ics to focus our audit and under­stand­ing of the organ­isa­tion ✓ clear and upfront com­mu­nic­a­tions, with reg­u­lar com­mu­nic­a­tion dur­ing the year ✓ report­ing with focused actions which will sup­port you in improv­ing your controls/​operations

Adding value

Our aim is to add value to the Author­ity through our extern­al audit work. This will be delivered through deliv­er­ing a high qual­ity audit. Spe­cific­ally for the Author­ity we will also under­take the fol­low­ing arrangements:

• Robust and effect­ive audit meth­od­o­logy: Our ISA com­pli­ant audit meth­od­o­logy is tailored to focus audit resource on sig­ni­fic­ant risk areas and key estim­ates and judge­ments. • Invest­ing in our people: Our resourcing mod­el is designed to ensure you have a skilled, exper­i­enced and know­ledge­able audit team. • Invest­ing in tech­no­logy: We con­tin­ue to invest in data ana­lys­is and audit soft­ware to deliv­er more effi­cient ISA com­pli­ant audit processes.

We will share rel­ev­ant Audit Scot­land and Grant Thornton pub­lic­a­tions with Seni­or Man­age­ment and the Audit and Risk Com­mit­tee, identi­fy­ing par­tic­u­lar areas for con­sid­er­a­tion. We will pro-act­ively work with man­age­ment dur­ing the year to dis­cuss any new or emer­ging mat­ters, such as the new rev­en­ue stand­ards which come into effect from 1 April 2019.

Key audit deliverables

²⁰¹⁸⁄₁₉ Deliv­er­ables as set out in the Audit Scot­land plan­ning guid­ance (Octo­ber 2018)

• Con­firm­a­tion of agreed fee by end of Feb­ru­ary 2019 • Annu­al qual­ity report to the Aud­it­or Gen­er­al and Accounts Com­mis­sion (Janu­ary 2019) • Cur­rent issues return for Cent­ral Gov­ern­ment to Audit Scot­land (21 Janu­ary 2019 and 19 July 2019) • Sub­mis­sion of fraud cases to Audit Scot­land on a quarterly basis • Sub­mis­sion of annu­al audit report and audited accounts (dead­line 31 Octo­ber 2019)

Planned Audit Scot­land pub­lic­a­tions which may be rel­ev­ant to the Authority

• Digit­al pro­gress in cent­ral gov­ern­ment and health (report­ing early ²⁰¹⁹⁄₂₀) • Mod­ern Appren­tice­ships • Extern­al Audit Plan (this doc­u­ment) • Annu­al Report to those Charged with Gov­ernance and the Aud­it­or Gen­er­al for Scot­land (August 2019) • Audit opin­ion (August 2019) • Man­age­ment let­ter of rep­res­ent­a­tion (August 2019)

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Audit approach and materiality

We under­take your audit in accord­ance with Inter­na­tion­al Stand­ards on Audit­ing (UK) (ISAs) and the Audit Scot­land Code of Audit Prac­tice (May 2016). On an annu­al basis we are required to give an opin­ion as to wheth­er the Fin­an­cial Statements:

• give a true and fair view • have been prop­erly pre­pared in accord­ance with rel­ev­ant legis­la­tion and stand­ards • audited parts of the remu­ner­a­tion and staff report have been pre­pared in accord­ance with the guid­ance • reg­u­lar­ity of expendit­ure • the wider inform­a­tion con­tained in the fin­an­cial state­ments e.g. Account­ab­il­ity Report; Dir­ect­ors Report and Gov­ernance Statement

Basis for materiality

We determ­ine fin­an­cial state­ment mater­i­al­ity based on a pro­por­tion of the total oper­at­ing expendit­ure. This approach is con­sist­ent with our pri­or year mater­i­al­ity determ­in­a­tion. We have determ­ined mater­i­al­ity to be £0.120 mil­lion, which equates to approx­im­ately 2% of your pri­or year total oper­at­ing expendit­ure for the year. This is based on our judge­ment of our con­sid­er­a­tion of mater­i­al to the user of the account based on under­stand­ing of the Authority.

We recon­sider plan­ning mater­i­al­ity if, dur­ing the course of our audit engage­ment, we become aware of facts and cir­cum­stances that would have caused us to make a dif­fer­ent determ­in­a­tion of plan­ning materiality.

Per­form­ance materiality

Per­form­ance mater­i­al­ity rep­res­ents the amount set for the fin­an­cial state­ments as a whole to reduce the prob­ab­il­ity that the aggreg­ate of uncor­rec­ted and undetec­ted mis­state­ments exceed mater­i­al­ity. Based on our audit exper­i­ence in ²⁰¹⁷⁄₁₈ we have retained this for ²⁰¹⁸⁄₁₉ at 75% (£90,000). Per­form­ance mater­i­al­ity determ­ines those accounts which test­ing will be under­taken on and the level of sample test­ing per­formed where applicable.

Report­ing to those charged with governance

Whilst our audit pro­ced­ures are designed to identi­fy mis­state­ments which are mater­i­al to our opin­ion on the fin­an­cial state­ments as a whole, we nev­er­the­less report to the Audit and Risk Com­mit­tee any unad­jus­ted mis­state­ments of less­er amounts to the extent that these are iden­ti­fied by our audit work. Under ISA 260 (UK) ​‘Com­mu­nic­a­tion with those charged with gov­ernance’, we are obliged to report uncor­rec­ted omis­sions or mis­state­ments oth­er than those which are ​‘clearly trivi­al’ to those charged with gov­ernance. We have determ­ined this threshold to be £6,000 thousand.

Going con­cern considerations

As aud­it­ors, we are required to ​“obtain suf­fi­cient appro­pri­ate audit evid­ence about the appro­pri­ate­ness of management’s use of the going con­cern assump­tion in the pre­par­a­tion and present­a­tion of the fin­an­cial state­ments and to con­clude wheth­er there is a mater­i­al uncer­tainty about the entity’s abil­ity to con­tin­ue as a going con­cern” (ISA (UK) 570). We will review management’s assess­ment of the going con­cern assump­tion and eval­u­ate the dis­clos­ures in the fin­an­cial statements.

Work­ing with Intern­al Audit

We will aim to not duplic­ate the work of your intern­al aud­it­ors. We will con­sider the intern­al audit plan for ²⁰¹⁸⁄₁₉ and identi­fy any par­tic­u­lar areas of risks that we either need to reflect in our approach or are rel­ev­ant to our wider scope audit work. We will con­tin­ue to review intern­al audit work through­out the year and main­tain and ongo­ing, open, dia­logue with intern­al audit.

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A risk based audit methodology

Under­stand­ing the Author­ity and its environment

This is our third year as the extern­al aud­it­ors of the Author­ity appoin­ted under the Audit Scot­land frame­work. In ²⁰¹⁷⁄₁₈, the Author­ity received fund­ing of £4.75 mil­lion of expendit­ure lim­it alloc­a­tion from the Scot­tish Gov­ern­ment to sup­port oper­at­ing activ­ity and gen­er­ated income from plan­ning fees, pro­jects and oth­er oper­at­ing income of £1.64 million.

The Cairngorms Nation­al Park Part­ner­ship Plan (2017−22) is pre­pared col­lab­or­at­ively with part­ners includ­ing loc­al author­it­ies, Scot­tish Gov­ern­ment, and the wider pub­lic through con­sulta­tion out­lines the pri­or­it­ies for Cairngorms Nation­al Park. The Author­ity devel­ops its own three year Cor­por­ate Plan (The Cairngorms Nation­al Park Plan (2018−2022)) which out­lines how the Part­ner­ship Plan object­ives will be delivered.

The Cor­por­ate Plan recog­nises the fin­an­cial con­straints in which the Author­ity works in, with fore­cast grant –in-aid rev­en­ue assumed to have no uplift over the three year peri­od. Through rising cost pres­sures through infla­tion­ary pres­sures on non-pay increases as well as assumed uplifts in payroll costs, the Author­ity recog­nises that it will need to deliv­er strategy using effi­cient and effect­ive ways of work­ing while look­ing at oppor­tun­it­ies to gen­er­ate oper­at­ing rev­en­ue to sup­port increas­ing costs.

Sig­ni­fic­ant risks

Sig­ni­fic­ant risks are defined by ISAs (UK) as risks that, in the judge­ment of the aud­it­or, require spe­cial audit con­sid­er­a­tion. In identi­fy­ing risks, audit teams con­sider the nature of the risk, the poten­tial mag­nitude of mis­state­ment, and its like­li­hood. Sig­ni­fic­ant risks are those risks that have a high­er risk of mater­i­al misstatement.

Over­view of our sig­ni­fic­ant audit risks iden­ti­fied at plan­ning and our pro­posed approach

Risk area	Descrip­tion of risk	Planned response
Risk of fraud in rev­en­ue recognition	As set out in ISA 240, there is a pre­sumed risk that rev­en­ue may by mis­stated due to improp­er recog­ni­tion of rev­en­ue. Giv­en grant-in-aid income is well fore­cast and agreed to grant-in-aid con­firm­a­tion we do not con­sider this to be of high­er risk. Our pre­sumed risk there­fore focuses on oper­a­tion­al plan and oth­er income. We con­sider the risk to be pre­val­ent around the year end and there­fore focus our audit work on trans­ac­tions around the year end.	• Walk­throughs of the con­trols and pro­ced­ures around mater­i­al income streams and val­id­a­tion of key con­trols where appro­pri­ate. • Agree income in year to sup­port­ing receipts/​invoices/​cash • Con­sider income cut off pro­ced­ures and sub­stant­ive test­ing over pre and post year end bal­ances. • A focus on recov­er­ab­il­ity of bal­ances at the year end.
Fraud in expendit­ure recog­ni­tion as set out in Prac­tice Note 10.	Oper­at­ing expendit­ure is under­stated or not treated in the cor­rect peri­od (risk of fraud in expendit­ure). As set out in Prac­tice note 10 (revised) which applies to pub­lic sec­tor entit­ies. As payroll expendit­ure is well fore­cast and agree­able to under­ly­ing payroll sys­tems there is less oppor­tun­ity for the risk of mis­state­ment in this expendit­ure stream. We there­fore focus on non pay expendit­ure. We con­sider the risk to be par­tic­u­larly pre­val­ent around the year end and there­fore focus our test­ing on cut-off of non-pay expenditure.	• Per­form cut off at year end on pre and post year end trans­ac­tions and record­ing. • Review­ing the com­plete­ness of cred­it­ors (and expendit­ure) recog­nised. • Walk­through of the key expendit­ure con­trols in place. • Reg­u­lar­ity – Expendit­ure incurred in accord­ance with the type/​nature of the Author­ity as an organisation.
Man­age­ment over­ride of controls	As set out in ISA 240, across all entit­ies there is a pre­sumed risk of fraud being per­pet­rated by man­age­ment through its abil­ity to manip­u­late account­ing records dir­ectly or indir­ectly and pre­pare fraud­u­lent fin­an­cial state­ments by over­rid­ing con­trols that oth­er­wise appear to be oper­at­ing effect­ively. over­ride of con­trols is present in all entities.	• A focus on under­stand­ing how/​where man­age­ment over­ride of con­trols may occur. • Review of the con­trols over journ­al entries using our data ana­lys­er tool to focus on high­er risk journ­als. • Under­stand­ing key areas of judge­ment and account­ing estim­ates with­in the fin­an­cial state­ments and the basis for these judge­ments and the applic­a­tion of account­ing policies. This include assump­tions around LEAD­ER pro­gramme receiv­ables. • Review­ing unusu­al and/​or sig­ni­fic­ant trans­ac­tions that are out with the nor­mal course of busi­ness for the entity to under­stand the rationale for these transactions.

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Wider scope audit – Smal­ler body approach

Our respons­ib­il­it­ies under Audit Scotland’s Code of Audit Prac­tice extend bey­ond the audit of the fin­an­cial statements.

The Code sets out four dimen­sions that frame wider scope audit work into iden­ti­fi­able areas. Along­side Best Value, the audit dimen­sions set a com­mon frame­work for our audit work and we review and con­clude on the four dimen­sions and that there are organ­isa­tion­al arrange­ments in place to secure Best Value. Audit Scot­land Audit Plan­ning guid­ance out­lines key areas for con­sid­er­a­tion. Rel­ev­ant to the organ­isa­tion we will con­sider the following:

• EU With­draw­al, • chan­ging land­scape for pub­lic fin­an­cial man­age­ment, • depend­ency on key sup­pli­ers and • open­ness and transparency.

We con­sider these areas through our audit plan­ning pro­cesses and through­out the audit cycle. At our plan­ning there are no sig­ni­fic­ant audit risks iden­ti­fied in rela­tion to these areas.

Wider scope approach — Smal­ler Body

For smal­ler bod­ies the Audit Scot­land Code of Prac­tice per­mits aud­it­ors to not apply the full wider scope audit. In our judge­ment, tak­ing into account the nature of the Author­ity oper­at­ing activ­ity and income and expendit­ure streams, we feel it is appro­pri­ate to treat you as a smal­ler body under the Code. How­ever, in accord­ance with Audit Scot­land plan­ning guid­ance, we will update our under­stand­ing of your arrange­ments for ensur­ing fin­an­cial sus­tain­ab­il­ity as well as your gov­ernance arrange­ments in place to sup­port dis­clos­ures con­tained with­in the annu­al gov­ernance state­ment included with­in your fin­an­cial statements.

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Appen­dices

Key audit deliv­er­ables and our team

(Diagram/​chart of key audit deliv­er­ables and timeline)

Audit pro­cess

(Diagram/​chart of audit process)

Fees and independence

Ser­vice	Fees £	Ser­vice	Fees £
Extern­al Audit Fee	8,590	At plan­ning stage we con­firm there are no non-audit fees	Nil
Pooled Costs	2,070
Con­tri­bu­tion to Audit Scot­land costs	510
Con­tri­bu­tion to Per­form­ance Audit and Best Value	0
2018 – 19 Fee	11,170

The audit fee is cal­cu­lated in accord­ance with guid­ance issued by Audit Scot­land. In accord­ance with the Audit Scot­land guid­ance we can increase the fee by up to 20% from the base fee set by Audit Scot­land, depend­ing on risk factors iden­ti­fied by us as your extern­al aud­it­ors. We can­not reduce the fee from the baseline set out by Audit Scot­land. The above pro­posed fee, set at the base fee, has been agreed with man­age­ment. The fee is based on the fol­low­ing assumptions:

• sup­port­ing sched­ules to all fig­ures in the accounts are sup­plied by the agreed dates and in accord­ance with the agreed upon inform­a­tion request list • the scope of the audit, and the Author­ity activ­it­ies will not change sig­ni­fic­antly from planned • the Author­ity will make avail­able man­age­ment and account­ing staff to help us loc­ate inform­a­tion and to provide explan­a­tions. We reserve the right to charge an addi­tion­al fee for any addi­tion­al work. • We will only receive (and audit) 3 sets of accounts (1^st draft; amended draft and final)

Inde­pend­ence and ethics

We con­firm that there are no sig­ni­fic­ant facts or mat­ters that impact on our inde­pend­ence as aud­it­ors that we are required or wish to draw to your attention.

We have com­plied with the Audit­ing Prac­tices Board’s Eth­ic­al Stand­ards and there­fore we con­firm that we are inde­pend­ent and are able to express an object­ive opin­ion on the fin­an­cial statements.

Full details of all fees charged for audit and non-audit ser­vices will be included in our Annu­al Report to those charged with gov­ernance at the con­clu­sion of the audit.

We con­firm that we have imple­men­ted policies and pro­ced­ures to meet the require­ments of the Audit­ing Prac­tices Board’s Eth­ic­al Standards.

We are required by audit­ing and eth­ic­al stand­ards to com­mu­nic­ate any rela­tion­ships that may affect the inde­pend­ence and objectiv­ity of the audit team.

We can con­firm no inde­pend­ence con­cerns have been identified.

Cli­ent Service

We take our cli­ent ser­vice ser­i­ously and con­tinu­ously seek your feed­back on our extern­al audit ser­vice. Should you feel our ser­vice falls short of expec­ted stand­ards please con­tact Joanne Brown, Head of Pub­lic Sec­tor Assur­ance Scot­land in the first instance who over­sees our port­fo­lio of Audit Scot­land work (joanne.​e.​brown@​uk.​gt.​com). Altern­at­ively, should you wish to raise your con­cerns fur­ther please con­tact Jon Roberts, Part­ner and Head of Assur­ance, 30 Fins­bury Square, Lon­don, EC2A 1AG. If your feed­back relates to audit qual­ity and we have not suc­cess­fully resolved your con­cerns, your con­cerns should be repor­ted to Elaine Boyd, Assist­ant Dir­ect­or, Audit Scot­land Qual­ity and Appoint­ments in accord­ance with the Audit Scot­land audit qual­ity com­plaints process.

Fraud arrange­ments

The term fraud refers to inten­tion­al acts of one or more indi­vidu­als amongst man­age­ment, those charged with gov­ernance, employ­ees or third parties involving the use of decep­tion that res­ult in a mater­i­al mis­state­ment of the fin­an­cial state­ments. In assess­ing risks, the audit team is alert to the pos­sib­il­ity of fraud at the Authority.

As part of our audit work we are respons­ible for:

• identi­fy­ing and assess­ing the risks of mater­i­al mis­state­ment of the fin­an­cial state­ments due to fraud in par­tic­u­lar in rela­tions to man­age­ment over­ride of con­trols. • Lead­ing a dis­cus­sion with those charged of gov­ernance (for the Author­ity this is assumed to be the Audit and Risk Com­mit­tee) on their view of fraud. Typ­ic­ally we do this when present­ing our audit plan and in the form of man­age­ment and those charged with gov­ernance ques­tion­naires. • design­ing and imple­ment­ing appro­pri­ate audit test­ing to gain assur­ance over our assessed risks of fraud • respond­ing appro­pri­ately to any fraud or sus­pec­ted fraud iden­ti­fied dur­ing the audit.

As aud­it­ors we obtain reas­on­able but not abso­lute assur­ance the fin­an­cial state­ments as a whole are free from mater­i­al mis­state­ment, wheth­er due to fraud or error.

We will obtain annu­al rep­res­ent­a­tion from man­age­ment regard­ing man­age­ments assess­ment of fraud risk, includ­ing intern­al con­trols, and any known or sus­pec­ted fraud or misstatement.

The primary respons­ib­il­ity for the pre­ven­tion and detec­tion of fraud rests with man­age­ment and those charged with gov­ernance includ­ing estab­lish­ing and main­tain­ing intern­al con­trols over the reli­ab­il­ity of fin­an­cial report­ing effect­ive­ness and effi­ciency of oper­a­tions and com­pli­ance with applic­able laws and regulations.

It is the Author­ity respons­ib­il­ity to estab­lish arrange­ments to pre­vent and detect fraud and oth­er irreg­u­lar­ity. This includes:

• devel­op­ing, pro­mot­ing and mon­it­or­ing com­pli­ance with stand­ing orders and fin­an­cial instruc­tions • devel­op­ing and imple­ment­ing strategies to pre­vent and detect fraud and oth­er irreg­u­lar­ity • receiv­ing and invest­ig­at­ing alleged breaches of prop­er stand­ards of fin­an­cial con­duct or fraud and irregularity.

Through­out the audit we work with the Author­ity to review spe­cif­ic areas of fraud risk, includ­ing the oper­a­tion of key fin­an­cial con­trols. We also exam­ine the policies in place, strategies, stand­ing orders and fin­an­cial instruc­tions to ensure that they provide a strong frame­work of intern­al control.

All sus­pec­ted frauds and/​or irreg­u­lar­it­ies over £5,000 are repor­ted to Audit Scot­land by us as your aud­it­ors on a quarterly basis.

Respect­ive responsibilities

As set out in the Code of Audit Prac­tice (pages 10 to 16) there are a num­ber of key respons­ib­il­it­ies you as an organ­isa­tion are respons­ible for, and oth­ers, as appoin­ted aud­it­ors we are respons­ible for. These are sum­mar­ised below:

Area	Cairngorms Nation­al Park Authority’s Responsibilities
Cor­por­ate governance	• Estab­lish­ing arrange­ments for prop­er con­duct of its affairs • Leg­al­ity of activ­it­ies and trans­ac­tions • Mon­it­or­ing adequacy and effect­ive­ness of arrange­ments (inc role of those charged with governance)
Fin­an­cial statements	• Pre­par­ing fin­an­cial state­ments which give a true and fair view of their fin­an­cial pos­i­tion • Main­tain­ing account­ing records and work­ing papers • Put­ting in place sys­tems of Intern­al Con­trol • Main­tain­ing prop­er account­ing records • Pre­par­ing and pub­lish­ing an annu­al gov­ernance state­ment, man­age­ment com­ment­ary and remu­ner­a­tion report
Fin­an­cial position	• Prop­er arrange­ments to ensure fin­an­cial pos­i­tion is soundly based and respons­ib­il­ity to ensure arrange­ments achieve object­ives as well as fin­an­cial, oper­a­tion­al and com­pli­ance con­trols – sup­port­ing achieve­ment of object­ives and secure value for money
Fraud and error	• Estab­lish­ing appro­pri­ate arrange­ments for pre­ven­tion and detec­tion of fraud, error, irreg­u­lar­it­ies, bribery and cor­rup­tion and affairs are prop­erly managed

Our respons­ib­il­it­ies	How do we do this in practice
• Under­take stat­utory duties and com­ply with pro­fes­sion­al engage­ment and eth­ic­al standards	• Review of the Annu­al Gov­ernance statement
• Provide an opin­ion on fin­an­cial state­ments and where appro­pri­ate reg­u­lar­ity of transactions	• Fin­an­cial pos­i­tion and arrange­ments for ensur­ing fin­an­cial sus­tain­ab­il­ity in the medi­um to longer term
• Review and report on, as appro­pri­ate, oth­er inform­a­tion eg annu­al gov­ernance state­ments, man­age­ment com­ment­ary, remu­ner­a­tion reports	• Review of oth­er inform­a­tion in line with our know­ledge and under­stand­ing of the Authority
• Noti­fy the Aud­it­or Gen­er­al when cir­cum­stances indic­ate a stat­utory report may be required	• Ongo­ing dia­logue and engage­ment with Audit Scot­land dur­ing the year
• Demon­strate com­pli­ance with wider pub­lic audit scope as applic­able to a smal­ler body

Weak­nesses and risks iden­ti­fied by us as your aud­it­ors are only those which have come to our atten­tion dur­ing our nor­mal audit work in accord­ance with the Code, and may not be all that exist. Com­mu­nic­a­tion by us of mat­ters arising from the audit of the fin­an­cial state­ments or of risks or weak­nesses does not absolve man­age­ment from its respons­ib­il­ity to address the issues raised and to main­tain an adequate sys­tem of control.

Tech­nic­al updates

For ²⁰¹⁸⁄₁₉, new account­ing stand­ards (Inter­na­tion­al Fin­an­cial Report­ing Stand­ards (IFRS)), will apply cov­er­ing rev­en­ue (IFRS 15) and fin­an­cial instru­ments (IFRS 9).

IFRS 9: Fin­an­cial Instruments

The intro­duc­tion of IFRS 9 pro­duces a more prin­ciples based approach to the account­ing of fin­an­cial instru­ments, includ­ing their clas­si­fic­a­tion and meas­ure­ment. The main fea­tures of the new stand­ard are sum­mar­ised in the table.

(Table of IFRS 9 impact)

IFRS 15: Rev­en­ue from Con­tracts with Customers

The core prin­ciple of IFRS 15 is that a body should recog­nise rev­en­ue for the trans­fer of goods or ser­vices to cus­tom­ers at an amount that reflects the expec­ted price. A body recog­nises rev­en­ue in accord­ance with that core prin­ciple by apply­ing the fol­low­ing five steps:

1. Identi­fy the contract(s) with a cus­tom­er. The FReM has exten­ded the defin­i­tion of a con­tract to include legis­la­tion which enables a body to obtain rev­en­ue that is not clas­si­fied as taxation.
2. Identi­fy the per­form­ance oblig­a­tions in the contract
3. Determ­ine the trans­ac­tion price
4. Alloc­ate the trans­ac­tion price to the per­form­ance oblig­a­tions in the contract
5. Recog­nise rev­en­ue when (or as) the entity sat­is­fies a per­form­ance obligation.

The impact of the intro­duc­tion of IFRS 15 will vary across organisations.

The FReM inter­pret­a­tion removes the policy choice to ret­ro­spect­ively restate in accord­ance with IAS 8. On trans­ition, entit­ies will recog­nise the dif­fer­ence between the pre­vi­ous car­ry­ing amount and the car­ry­ing amount at the begin­ning of the annu­al report­ing peri­od that includes the date of ini­tial applic­a­tion in the opin­ing gen­er­al fund with­in tax­pay­ers’ equity.

Audit action

We will con­tin­ue to work with man­age­ment to under­stand the impact of the intro­duc­tion of IFRS 9 and IFRS 15 on the entity’s fin­an­cial state­ments and any poten­tial changes in account­ing policy that arise from these. We do not anti­cip­ate that IFRS 9 will have a mater­i­al impact on the entity’s fin­an­cial state­ments. How­ever, fur­ther assess­ment is required around the impact of IFRS 15, par­tic­u­larly over con­tact arrange­ments. We will provide an early review of the pro­posed year end account­ing treat­ment, provid­ing rel­ev­ant tech­nic­al insight and chal­lenge to provide assur­ance that the year end fin­an­cial state­ments have been pre­pared in accord­ance with the FReM and applic­able account­ing standards.

Com­mu­nic­a­tion of audit mat­ters with those charged with governance

(Table of com­mu­nic­a­tion plan)

Inter­na­tion­al Stand­ards on Audit­ing (UK) (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 our Annu­al Report to those Charged with Gov­ernance 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 Man­age­ment and the Audit and Risk Committee.

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(Grant Thornton logo and con­tact information)