Agenda item

Highways Infrastructure Assets - Update


A report of the Director of Finance was presented, the purpose of which was to update Members on the Highways Infrastructure Assets position for 2020/21 following the Chartered Institute of Public Finance and Accountancy’s review on this subject earlier in the year.


A way forward on this issue, which was acceptable to both the Council and to the external auditors, would allow EY to issue their opinion on the financial statements and to close the audit process for that financial year. This would be useful given the length of the current audit and the need to move on with the audit of the 2021/22 accounts for the Council which had been prepared.


At a meeting on 22 July, the Committee approved the audited statement of accounts subject to; the annual governance statement being finalised and agreed by the Mayor, the Chief Executive and the Director of Finance, and the Highways Infrastructure Assets issue, which had been raised during the audit being resolved.   A signed annual governance statement for 2020/21 was included within the agenda papers for this meeting.   In order for EY to issue their audit opinion for the financial year, a resolution on the position on highways assets was required.


It was explained that in an audit, a limitation of scope was a situation where auditors could not obtain sufficient appropriate evidence to make a conclusion on certain account balances, transactions or events. This was the position with highways assets where local authorities held some data but the accounting records did not generally record and adjust for de-recognitions (or disposals) in sufficient detail.  The normal approach to this was for the auditors to modify their opinion on the financial statements as a result.


The limitation of scope approach would allow the audit process for 2020/21 to be completed with a view from EY that the financial statements give a true and fair view in all regards and for all key balances, except for Highways Infrastructure Assets.  This would allow the Council to publish their audited Statement of Accounts for 2020/21 and EY to move on with their audit of the 2021/22 accounts.


Although Middlesbrough’s highways service maintained an information management system (Symology) and some of the information that was required for the accounting process was recorded within this system.   Officers were not confident that this was sufficient to restate the balances needed back to 2011, when international financial reporting standards were first introduced.   Although further work could be done to extract the information and to use local knowledge to fill in the gaps, this work could take several months.   The current accountancy fixed asset register also did not provide the level of detail required in relation to new additions and derecognitions to be able to account for those assets in a reasonable way.


Officers were more confident that Symology could be used to capture the correct level of data going forwards and that this work could be linked with the Council’s fixed asset register to produce the correct capital accounting entries going forwards.


As a result, the view of the Director of Finance (as responsible financial officer) was that the limitation of scope option to close the external audit for 2020/21 brought more benefits than disadvantages and that the Council should pursue this option with EY.   It was also sensible given the circumstances, as it allowed the maximum certainty on the Council’s financial position and to stakeholders.


The External Auditor confirmed that EY were supportive of the limitation of scope approach and commented that the Government and CIPFA were taking forward an action plan to amend the Code and the legislation to remove some of the disclosure requirements.


The Council finance team would continue to work with the Highways Service to see what information was needed/available to resolve this issue, both retrospectively and going forward.   Officers would monitor the position on future CIPFA guidance and changes to the accounting code of practice and update the Committee on an interim basis.


AGREED as follows that:

1.  the contents of the report and the position on the audit process for 2020/21 were noted.

2.  the Committee concurred with the Director of Finance’s advice to accept a limitation of scope option in relation to Highways Infrastructure assets for the year in question.

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