Appendix 1: Assumptions and mitigations that may affect the level of additional fee required at an individual body
VFM arrangements commentary
| Fees will usually be within the proposed range/ at the proposed level if… |
- No significant weaknesses have been identified in previous audits or planning
- Arrangements for financial sustainability, governance and improving VFM are stable
- There are no major issues in the year
- The body has made only limited use of complex, unusual or innovative arrangements for service delivery (e.g. outsourcing, joint ventures, controlled companies, pooled budgets)
- Any weaknesses in internal control are minor
- Comprehensive and balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
- The body has provided good documentation to support arrangements in most areas
- The body has usually provided timely, relevant and comprehensive responses to audit queries
- Timely and effective responses to interim reporting
| Fees will usually be above the proposed range/ proposed level if… |
- Significant weaknesses have been identified in previous audits or planning
- There have been significant changes in arrangements for financial sustainability, governance or improving VFM
- There is a major issue in the year
- The body has entered into complex, unusual or innovative arrangements for service delivery
- There are weaknesses in internal control other than of a minor nature
- Limited and/or balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
- Documentation to support arrangements is weak
- Responses to audit queries are delayed and/or inadequate
- There are circumstances that require consideration of interim reporting
- There are circumstances that require consideration of statutory reporting
- Delayed and/or ineffective responses to interim reporting
| Bodies can reduce the impact on fees by… |
- Implementation and high-quality monitoring of implementation of agreed actions in response to previous audits
- Early and open engagement on changes in arrangements and proposed complex, unusual or innovative arrangements for service delivery
- Preparation of high-quality, comprehensive and balanced description of arrangements for financial sustainability, governance and improving VFM in Annual Governance Statement
- Preparation of high-quality documentation to support arrangements
- Establishment of effective arrangements for responding to audit queries
- Effective arrangements for timely and comprehensive consideration of interim reporting
- Implementation of effective internal controls and in particular:
- maintenance of high quality, up-to-date documentation of internal controls
- appropriate documentation of support for, challenge in making, and reasons for major decisions
- effective communication and dialogue with the external auditor
- Implementation of an effective system of financial management and in particular:
- maintenance of high quality, up-to-date documentation of risks and associated mitigation, including for risks relating to complex arrangements
- clear documentation of the financial implications of other plans and initiatives
- effective communication and dialogue with the external auditor
- Implementation of an effective performance management framework and in particular:
- evidenced consideration of comprehensive performance management reports covering all relevant areas
- effective communication and dialogue with the external auditor
ISA 540
(Accounting estimates)
| Fees will usually be within the proposed range/ at the proposed level if… |
- No significant weaknesses have been identified in previous audits
- No material accounting estimates other than for property, plant and equipment, pension liabilities and local taxation revenue
- Arrangements for preparation of material accounting estimates are stable
- The body has appropriately instructed experts to support them in preparing accounting estimates
- They have validated the information provided to experts
- They have considered the advice of experts and documented clearly the reasons for the approach that they have adopted in respect of material estimates
- Any weaknesses in internal control relevant to material accounting estimates are minor
- The body has provided good documentation to support material accounting estimates
- The body has provided timely, relevant and comprehensive responses to audit queries
- Timely and effective responses to interim reporting
| Fees will usually be above the proposed range/ proposed level if… |
- Significant weaknesses have been identified in previous audits
- There are material accounting estimates other than for property, plant and equipment, pension liabilities and local taxation revenue
- There have been significant changes in arrangements for preparing material accounting estimates
- Experts have not been instructed or inadequately instructed in respect of material accounting estimates
- Information provided to experts has not been validated
- There is no documented consideration of the advice offered by experts and the reasons for the material estimates chosen
- There are weaknesses in internal control relevant to material accounting estimates other than of a minor nature
- Documentation to support accounting estimates is weak
- Responses to audit queries relating to accounting estimates are delayed and/or inadequate
- There are circumstances that require consideration of non-standard reporting in respect of accounting estimates
- Delayed and/or ineffective responses to interim reporting
| Bodies can reduce the impact on fees by… |
- Implementation and high-quality monitoring of implementation of agreed actions in response to previous audits
- Early and open engagement on changes in arrangements for preparation of accounting estimates
- Engagement and appropriate instruction of experts in respect of accounting estimates
- Validation of information provided to experts in respect of accounting estimates
- Documentation of their consideration of advice offered by experts in respect of accounting estimates and the reasons for material estimates chosen
- Preparation of high-quality documentation to support material accounting estimates
- Establishment of effective arrangements for responding to audit queries
- Effective arrangements for timely and comprehensive consideration of interim reporting
- Implementation of effective internal controls and in particular:
- systematic documentation of estimates by reference to criteria in the auditing standard
- early engagement of appropriate experts where in-house expertise is not available
- preparation of appropriate, relevant instructions by reference to the financial reporting framework
- demonstrable quality assurance of data used for preparing estimates
- evidence review of estimates by senior officers and audit committee or equivalent
ISA 240
(The auditor’s responsibilities relating to fraud in an audit of financial statements)
| Fees will usually be within the proposed range/ at the proposed level if… |
- No significant weaknesses have been identified in previous audits
- Arrangements are stable
- There are no major incidents in the year
- The body has provided good documentation to support arrangements
- The body has provided timely, relevant and comprehensive responses to audit queries
| Fees will usually be above the proposed range/ proposed level if… |
- Significant weaknesses have been identified in previous audits
- There have been significant changes in arrangements
- There is a major incident in the year
- There are weaknesses in internal control
- Documentation to support arrangements is weak
- Responses to audit queries are delayed and/or inadequate
| Bodies can reduce the impact on fees by… |
- Implementation of effective internal controls and in particular:
- clear documentation of arrangements for prevention, detection and investigation of fraud
- established arrangements for reporting of suspected frauds by employees and other parties
- established arrangement for investigation of fraud
- assurance over the operation of arrangements for prevention, detection and investigation of fraud
ISA 315
(Identifying and assessing the risks of material misstatements)
| Fees will usually be within the proposed range/ at the proposed level if… |
- The body has a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures
- The body does not have inherent risks for assertions relating to transactions, balances and disclosures that are unusual for the type of body in question
- The body has clear documentation of the controls for assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
- There are no significant changes in the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
- The body does not have a history of weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
- No significant weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures are identified relevant to the year of audit
| Fees will usually be above the proposed range/ proposed level if… |
- The body does not have a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures or the assessment is incomplete and/or out of date
- The body has inherent risks for assertions relating to transactions, balances and disclosures that are unusual for the type of body in question
- The body does not have clear documentation of the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls) or the documentation is incomplete and/or out of date
- There are significant changes in the controls for the assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
- The body has a history of weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
- Significant weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosure are identified relevant to the year of audit
| Bodies can reduce the impact on fees by… |
- Preparing and keeping up to date a well-documented assessment of inherent and control risks for assertions relating to transactions, balances and disclosures
- Preparing and keeping up to date clear documentation of the controls for assertions relating to transactions, balances and disclosures (including controls over journal entries, general IT controls and application-specific IT controls)
- Promptly responding to and addressing any weaknesses in internal controls relevant to assertions relating to transactions, balances and disclosures
- Implementation of effective internal controls and in particular:
- comprehensive documentation of controls over transactions, account balances and disclosures
- comprehensive documentation of IT controls, including general IT controls