Agenda item

AUDIT PLAN 2016/17

Minutes:

Julie Masci (Engagement Lead) and Michelle Burge (Audit Manager) from Grant Thornton presented the External Audit Plan for the Avon Pension Fund for the year ending 31 March 2018.

 

The Head of Business, Finance and Pensions asked about the application of the going concern assumption to the Fund, noting that whereas commercial organisations have various revenue generating processes, the Fund’s revenue consists mainly of contributions. He wondered to what extent the auditors will seek assurance about those contributions, which are paid by a great diversity of employers in the context of a shrinking financial base in the public sector. Ms Masci responded that contributions had been flagged up as an area of reasonably possible risk in the Audit Plan (Agenda page 19). If any employer had difficulties paying contributions, the Regulator should be notified. For the Fund cash is king; if the Fund’s cash income appeared insufficient, the external auditors would be obliged to recognise that in their report.

 

The Vice-Chair asked about the inclusion of fraudulent transactions among the significant risks. Was this because this it was one of the likeliest risks or one of the costliest? Ms Masci replied that under auditing standards there is a rebuttable presumption that revenue may be misstated. The issue is the robustness of the income control environment. The external auditors would be very happy to be able to rebut the presumption.

 

A Member asked about whether the external auditors could use work done by Internal Audit. Ms Masci replied that auditing standards were quite specific about how the external auditors should conduct an audit. They would certainly enquire about work undertaken by Internal Audit relating to the Fund, and have regard to it, but they cannot directly rely on it and use it as a substitute for their own work.

 

A Member asked for a definition of Level 3 investments. Ms Masci replied that investments were classified as Level 1, 2, 3 according to how easy it was to assess and verify their value in accordance with the fair value hierarchy. Level 1 investments are those for which there are directly observable market prices, Level 2 investments are those for which there is some market information, though there are other factors that have to be taken into account, and Level 3 are those for which there are no observable market prices. The Investment Manager said that examples of Level 3 investments in the Fund would be infrastructure and hedge funds. Quite a few of the pooled investment vehicles are Level 2. Equity and bonds are Level 1. The Fund’s Level 3 investments are worth about £1.5bn and by default are relatively illiquid.

 

A Member asked whether the auditors would be doing anything different or additional because of pooling. Ms Masci replied that they would be looking at governance costs, but there would be no impact this year on their approach to the audit of investment. There would probably be an impact in 2018/19 after the transitioning of assets to Brunel. The Investment Manager said that work was being done with CIPFA and LGA to develop a national framework for reporting the costs and savings from pooling.

 

RESOLVED to note the Audit Plan for the accounts for the year ended 31 March 2018.

 

 

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