Comment / Are you ready for the year-end audit?

Just over a year ago, no-one could have imagined the unprecedented challenge that the NHS would face, and the scale of changes to the way we live and work. Although much feels different in 2021, the year-end external audit remains a constant of the annual timetable for finance teams.

Finance teams will still have been busy pulling together financial statements and preparing working papers; auditors will still be completing their work to required auditing standards and national deadlines; and audit committee members will still be providing essential review and challenge to the annual report and accounts.

As set out in HFMA’s briefing The external audit: best practice in working well together  the most essential ingredient for a smooth external audit is, and remains, ongoing planning and continuous communication between all parties involved.    

During the HFMAtalk podcast with Mark Surridge and Cathie Eddowes from audit firm Mazars, I had the opportunity to catch up on the issues auditors are expecting to focus on this year as well as the key elements that aid the audit process.

Arguably the biggest differences to pre-Covid-19 times are the impact of remote working and the access challenges faced during lockdown. While we remain in the period of lockdown easing, most audit work is still expected to be completed remotely. This changes the way that auditors and NHS bodies both interact and share documentation and evidence, such as completeness of journal testing.

Auditors’ inability to physically inspect inventory during the last year-end led to a number of audit opinions, including a limitation of scope qualification for some providers. This is likely to happen again. Valuers too have been limited in their ability to physically inspect assets. However, much was learnt from experiences last year – at the start of the pandemic – and auditors and finance teams have generally found ways to make this work well.

This underlines the point about good communication, with pragmatic conversations between auditors, finance teams, audit committees and boards essential to working through the issues and implications.

Aside from the pandemic, the new Code of audit practice applies to audits of financial statements from 2020/21 onwards. For the audit to run smoothly, it is important that all parties are clear on the main changes – these primarily relate to the auditor’s work on value-for-money (VFM) arrangements and reporting the audit.

Instead of the previous binary conclusion on VFM arrangements, the auditor will now provide an annual commentary and recommendations on the arrangements in place under three focused headings: financial sustainability; governance; and improving economy, efficiency and effectiveness. This is explained further in the webinar on Auditors’ work on VFM arrangements under the new Code of audit practice and reflected in the updated HFMA briefing on external audit reports.  

Other changes this year impacting auditors’ work include the updated guidance on going concern assessments and disclosures in the Department of Health and Social Care Group accounting manual and the Foundation trust annual reporting manual. The new auditing standard on estimates and judgements also reflects an increasing focus on estimates, especially those that are complex and require significant judgements. For further information on these and other issues expected to feature this year, see the HFMA’s 2020/21 year-end reminders for non-executive directors and lay members; 2020/21 annual report and accounts checklist and Going concern – assessment and reporting requirements in difficult times.

The audit season is always busy and can be intense for those involved. This is likely to be particularly the case this year. But finance teams have some idea of what to expect from last year’s process. The core principles remain the same as always and the over-riding message is to keep talking.