Year-end audit: targeting a smooth operation

by Lisa Robertson

28 April 2022

Finance teams can only breathe a very short sigh of relief, after pulling together another year’s set of financial statements, as they move swiftly onto the year-end audit. For many, this year is set to be another challenging audit cycle, with tight timelines and often complex issues to resolve.

The HFMA’s 2020/21 year-end survey highlighted that the preparation and audit of the 2020/21 annual report and accounts was difficult for many. On top of a decline in quality of draft accounts and working papers, there were communication challenges related to remote working and late challenges from auditors.

And this was not a one-off impact, with repercussions likely to be felt over this year-end. For example, some NHS bodies are carrying forward a higher level of unadjusted errors from 2020/21. This means that adjustments may need to be made to the 2021/22 accounts that are not material in themselves, but that, together with unadjusted errors carried forward, are material. Finance and audit teams will need to work together to avoid these issues in 2021/22.

This year it is expected that auditors will be back on site, although some remote working is likely to remain. For both finance team members and audit trainees that have joined since the start of the Covid-19 pandemic, this will be their first experience of the year-end on-site audit.

It is important to recognise that both finance and audit teams are likely to be feeling stretched and under pressure. In particular, staff at clinical commissioning groups are transitioning to integrated care boards and face a busy and uncertain time. They need to plan for the part-year financial statements and sufficient working papers to assure the new body and support the audit process.

Time will be at a premium. All NHS finance teams will be keen to free up time to focus on pressing financial issues. At the same time, auditors will be recovering from later local government audits and, in many cases, have undertaken less than usual levels of testing during the year that they can feed into their year-end audit.

There are some particular issues to watch out for this year, as set out in HFMA’s 2021/22 annual report and accounts checklist. Auditors are expected to focus on accruals and provisions, reflecting concerns about increasing levels and the robustness of estimates. Losses and special payment disclosures will face scrutiny. And the long-anticipated adoption of the new IFRS16 leasing standard in 2022/23 will require detailed disclosure of the expected financial impact of adoption in the 2021/22 financial statements.

The common aim of finance and audit teams is for the audit to be as effective, quick and painless as possible. Much of the groundwork will already have been laid, but as the 22 June audited accounts submission deadline will come round quickly, it is helpful to make sure all practical actions possible are in place.  

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 a co-operative working relationship. The audit should be seen as a joint effort with ongoing discussion of plans and issues. Everyone has a role to play. Non-executive directors and lay members can bring their wider knowledge of the NHS body to the process, but they also need to be aware of the specific accounting and auditing issues that many NHS bodies are facing. The HFMA’s 2021/22 year-end reminders for non-executive directors and lay members provides a summary of these.  

Good working papers are also essential, decreasing the likelihood of errors in the annual accounts, reducing the number of queries to resolve and enabling the auditor to focus their time appropriately. The HFMA’s Year-end working papers: a good practice guide provides a reminder of what good year-end working papers look like; what arrangements need to be in place to enable staff to prepare them; and some key issues to consider for the 2021/22 year-end. 

The audit season is always busy and can be intense for those involved. However, the annual external audit is not only a key statutory requirement, but also provides important and valuable assurance and insight into the financial position and governance of an organisation. The HFMA’s briefing External audit reports: the role of the audit committee summarises the reports that will be provided.

It is also worth highlighting that this year-end audit comes at a time when we understand that the local audit market is approaching crisis point. Some NHS organisations are finding it difficult to appoint an external auditor, with little or no interest being shown in invitations to tender for external audit services The NHS external audit market: current issues and possible solutions explores the reasons why the NHS external audit market is no longer as attractive as it once was. It is a live issue and, to get a clearer understanding of the scale of the problem, we are asking finance directors to complete a short survey.

Good luck everyone.