Agenda item

The Auditor presented the provisional Audit Results Report for the Teesside Pension Fund for 2019/2020. EY had substantially completed the audit of Teesside Pension Fund for the year ended 31 March 2020. Subject to concluding the outstanding matters listed in Appendix D of the submitted report, the auditor confirmed that EY expected to issue an unqualified audit opinion on the financial statements. Any further amendments would be notified to the Committee.

The auditor highlighted the following items in the report:

●     Materiality Thresholds.

The Auditor had previously reported that the materiality threshold used in the audit was £37.4 million, with a performance materiality of £28 million and an error-reporting threshold of £1.9 million. The thresholds had not been revised.

●     Audit Opinion.

The audit opinion would include additional narrative to highlight financial statement disclosures that the valuations of directly held property had been prepared on the basis of a 'material valuation uncertainty'. These matters did not constitute a qualification of the audit opinion.

●     Misstatements due to fraud or error.

 There were no significant findings to report.

●     Valuation of Investments.

 The Covid-19 pandemic had had a significant impact on markets and investments in the Pension Fund and resulted in a reduction in the value of the Fund relative to the prior year. Following discussions with Officers and Investment Managers, the Auditor was confident that the impact of Covid-19 on valuations had been accurately reflected.

●     Audit Differences.

A number of misstatements within the information used to prepare the accounts had been identified and these were listed at page 15 of the submitted report. The auditor highlighted that information received from the Custodian was not up to date and in one case there was duplication of an investment that had been split during the year and both the original and split investments were recognised. The cumulative effect was a material overstatement in the draft accounts which was slightly above materiality. The majority of this had now been adjusted for in the final statements and the valuation of the Fund's assets decreased as a result. With these adjustments that Auditor confirmed that the valuation of assets in the accounts was materially correct.

●     Directly Held Property.

 EY's property experts reassessed the valuations of eight of the Fund's assets and was comfortable that these were appropriate. The Auditor noted however that valuations were at the upper end of the range.

●     Audit Differences.

The total value was adjusted for was £33.1 million and £6.9 million that was not adjusted for. This was a combination of a £13.9 million that was a cumulative balance built up over a number of years. This would remain unadjusted as it was immaterial this year and would be looked at during 2020/2021 with the expectation that it would be cleared from the accounts for next year's audit. The 6.9 million was a cumulative impact of smaller differences between the Fund's records and investment managers. The Auditor confirmed that the opinion would be signed off with these amounts unadjusted.

●     Recommendation.

The auditor had provided a recommendation in relation to a review of the information provided by the Custodian.

In conclusion, the Auditor confirmed EY's independence and highlighted the outstanding matters for completion of the audit. The auditor acknowledged the support and assistance of Council Officers during a difficult year.

ORDERED that the Audit Results Report 2019/2020 for the Teesside Pension Fund was received and noted.