Key work to rebuild financial assurance for a West Yorkshire council is continuing at a steady pace, says its external auditors.
This follows a string of “disclaimed” audit opinions on Calderdale Council’s finances going back to 2021-22.
A disclaimed opinion is where where the auditor formally states that they do not express any opinion on the financial statements because they have been unable to obtain sufficient appropriate audit evidence, and the possible effects of what they have not been able to check could be material and pervasive.
The aim is that Calderdale should get back to “qualified” opinions by the 2027-28 accounts, which would be a boost to the council’s financial resilience.
Calderdale Council Audit Committee members heard in the summer external auditors Forvis Mazars’ audit director Alastair Newall explain the problems are not unique to Calderdale.
Hundreds of councils across the country are affected by issues compounded over several years – it is “very commonplace” in local government, he said.
There are legal requirements for external audit, with two main responsibilities for external auditors.
These are to audit local authorities’ financial statements and issue an Audit Report, and to satisfy themselves the local authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources – known as value-for-money arrangements, Mr Newall reported to the committee.
But during 2019-20 and 2020-21 a large number of external audits were delayed, impacting on the ability of auditors to complete 2021-22 and future years’ audit.
A significant backlog of unaudited accounts built up as a result and in 2024 legislation was enacted to put in place “backstop” dates, by when local authorities must publish their audited accounts for all the years up to 2027-28, he reported.
Where external auditors were unable to complete their audit by the backstop date for a financial year, the auditor has to issue a disclaimed opinion, which provides no assurance on the financial statements.
There is internal financial assurance from the council’s own finance team for those years.
This week Mr Newall said the key task for the year as completing the council’s risk assessment to support the full rebuilding of assurance from this year.
Councillors heard that to complete this work his team have requested information from the disclaimed periods – some of which were assessed by the council’s previous external auditor, Ernst and Young, who were undertaking the work until 2024 – from the council’s finance team, with whom they are working closely, at a steady place.
Councillors previously heard from Mr Newall it is not a process that can be rushed.
This includes trial balances, transaction listings and evidence that key financial controls were implemented and operating effectively during the disclaimed periods.
Mr Newall said this was being undertaken steadily: “Our plan for the current financial year is to get the risk assessment completed,” he said.
Once this is in place, and risks and related audit procedures necessary to rebuild have been identified to rebuild assurance, the auditors will work with council management to determine additional information required.
At that stage, a timetable will be agreed to deliver the rebuilding work alongside the annual audit work, reported Forvis Mazars.
A possible timeline might see further disclaimed audits issued for 2025-26 and 2026-27, but a qualified audit by 2027-28, councillors heard.
This would mean the external audit team would have regained assurance over a closing balance sheet including the council’s reserves balances.
However, the opinion would be qualified to reflect the lack of assurance over the opening position, which has the potential to impact the year’s Comprehensive Income and Expenditure Statement (CIES), which shows what the council spent and received under accounting rules, Movement in Reserves Statement (MiRS), which explains how that accounting position translates into the actual reserves and funds available to the council, and cash flow, said the report.
Ultimately, councils work towards an unqualified opinion from external auditors.
An unqualified audit opinion means the auditor has found no material errors in the council’s accounts and is satisfied they give a true and fair view of the council’s financial position, according to the National Audit Office.