Agenda item

The External Auditor presented a report which summarised EY’s preliminary audit conclusion in relation to the audit of Teesside Pension Fund for 2020/21.

EY’s audit of Teesside Pension Fund (‘the Fund’) for the year ended 31 March 2021 was nearing completion.  Subject to concluding the outstanding matters listed in the report, the External Auditor confirmed that EY expected to issue an unqualified audit opinion on the financial statements.

In the Audit Committee Planning Report, EY communicated that the audit procedures would be performed using a materiality of £34.2m and the threshold for reporting misstatements would be £2.3m.  At year end EY updated this assessment and confirmed that these levels remained appropriate.

The Audit Plan identified a number of key areas of focus for the audit of the financial report of Teesside Pension Fund and the report set out EY’s observations in relation to these areas, including views on areas which might be conservative and areas where there was potential risk and exposure.   Consideration of these matters and others identified during the period were summarised within the Areas of Audit Focus section of the report.

The External Auditor drew attention to following:

•           Misstatements due to fraud or error – no misstatements were identified.

•           Valuation of unquoted pooled investment vehicles - included within the initial draft accounts presented to EY for audit was the quarter three valuations rolled forward to produce a year end valuation.  Upon receipt of the year end confirmations it was apparent that the valuations were higher than the amounts included in the accounts, which resulted in a net understatement of investments by £26.4m. Management chose not to adjust for this valuation movement due to it being immaterial.  No further misstatements were identified.

•           Valuation of directly held property – EY’s Real Estate Team reviewed a sample of properties and concluded that all valuations were within an acceptable range.  No misstatements were identified.

A number of audit differences had been adjusted for by management. Details of these are included in Section 4 of the report.

There was one audit difference which was unadjusted.   EY identified a total net understatement of investments by £26.4m. This was primarily due to timing differences - the valuation reports used by the Pension Fund when preparing the accounts contained reports as at December 2021, whereas the year end valuation provided by Fund Managers as part of the confirmations process were as at March 2021.  Management chose not to adjust for this error due to it being immaterial.

The 2021/2022 audit work was almost completed and a matter around recording of income had been identified.  This had the potential to reach back into 2020/2021 and management were looking into this issue as a priority.

The External Auditor was required to review the Pension Fund Annual Report and issue an opinion on the consistency of the report with the audited Pension Fund financial statements included within the Middlesbrough Council Statement of Accounts.  EY had identified some consistency issues within the Annual Report which management were going to adjust for. Once the updates had been made EY would be in a position to issue their consistency opinion. 

The External Auditor extended EY’s thanks to the Officers for their assistance with the Audit.

It was highlighted that the latest valuation of the Fund was £5.1 billion.

AGREED that the Teesside Pension Fund Provisional Audit Results Report - Year ended 31 March 2021 was received and noted.