Auditors expected to issue disclaimer of opinion over Peterborough City Council finances due to lack of evidence

A disclaimer of audit opinion is issued when an auditor cannot obtain sufficient appropriate audit evidence to form an opinion on the financial statements.

The 2024/25 Audit Results Report for Peterborough City Council, conducted by Ernst & Young, stated: “As a result of the disclaimer of opinion on the 2021/22, 2022,23, and 2023/24 financial statements, we do not have assurance over the brought forward balances from 2023/24 (the opening balances).

“This means we do not have assurance over all 2024/25 in-year movements and the comparative prior year movements. We also do not have assurance over the 2023/24 comparative balances disclosed in the 2024/25 financial statements.

“Taken together with the requirement to conclude our work by the 2024/25 backstop date, the lack of evidence over these movements and balances mean we are unable to conclude that the 2024/25 financial statements are free from material and pervasive misstatement.”

It was noted in the report that the backlog in the publication of audited financial statements by local bodies nationally had grown to an “unacceptable level”.

Reasons for the backlog include: a lack of capacity within the local authority financial accounting profession, increased complexity of reporting requirements within the sector, a lack of auditors and audit firms with public sector experience, and increased regulatory pressure on auditors, which in turn has increased the scope and extent of audit procedures performed.

Work is underway to tackle the backlog by setting statutory backstop dates to enable the audit system to recover and enable auditors to focus on more up to-date accounts, where assurance is most valuable.

Ernst & Young expects to be in a position to sign the final financial statements Audit Report for Peterborough City Council in the first week of December.

Auditors’ observations

The audit by Ernst & Young commenced on July 14 this year following the council’s request to delay the start of the audit by two weeks so that working papers could be finalised.

At the date of the latest report, which will go before the council’s audit committee on November 24, auditors identified two uncorrected misstatements in the council’s finances.

One of these was an understatement of provision for the council’s share of NDR appeals (National Non-Domestic Rates) of £1.046 million.

The other involved the council classifying their ‘Intangible Assets under Construction’ as Property, Plant, and Equipment whereas these additions should be classified as Intangible Assets.

In terms of misstatements that were corrected, one of these included an audit difference of £199.051 million in relation to an increase in the valuation of Pension Liability.

“The misstatement was due to the impact of the asset ceiling on the valuation of the Pension Liability,” the report stated.

It was also noted that, subsequent to the publication of the draft financial statements, the council performed an expected credit loss adjustment assessment for the long-term debtor relating to the loan issued for the construction of the Hilton Hotel in Fletton Quays.

This credit loss assessment concluded that the carrying value of the loan needed adjusting down by £10.5 million. This would reduce long-term debtors by £10.5 million, according to the audit report.

Ernst & Young’s audit procedures also identified an overstatement of £18.53 million in long-term investments.

“This misstatement is in relation to the council’s investment in Peterborough HE Property Company Limited,” the report added.

“The valuation of the subsidiary entity has reduced due to the related Peterborough University building becoming operational in 2024/25, thereby reducing the net worth of Peterborough HE Property Company Limited.

“The group consolidation correctly reflect the net worth of the subsidiary, but management have not performed an expected credit loss assessment on their investment in the subsidiary to match the net worth of the subsidiary.”

Auditors also identified an asset valued at £5.267 million which had been incorrectly classified as an Investment Property instead of Property, Plant, and Equipment.

In terms of action the council should take in relation to governance, Ernst & Young’s report stated the following: “The council should review the approach to the preparation of the financial statements and support to the audit.

“The finance team should have a strong understanding of the requirements of the Local Government accounting and the CIPFA Code of Practice.

“The finance team should have a clear understanding of the operations of the council’s financial arrangements.

“Sufficient capacity of skilled finance professionals with the necessary skills and training are required to produce high-quality financial statements together high-quality supporting audit working papers.

“The finance team need to have sufficient capacity to support the audit in a timely manner.”