13 February 2025
This advisory note formalises key messages from the CIPFA Practice Oversight Panel on the crucial importance of seeking assurance that the annual accounts are true and fair. The note reinforces good practice principles that local government bodies in the UK should adopt and uses the experience of others to identify examples of good practice. The panel expects all organisations to be aware of, and learn lessons from, recent examples where chief financial officers (CFOs) have been unable to sign that accounts are true and fair. This advisory note draws on those lessons.
The advisory note applies to all local government bodies in the UK.
1. Background
The Accounts and Audit (Amendment) Regulations 2024 has been passed, introducing statutory backstop dates in response to the local audit backlog in England. The first backstop helped to clear the backlog and enable a focus on recent accounts. Five further backstops will enable auditors to rebuild assurance over several audit cycles rather than in a single year, reducing the risk of the backlog re-forming. As a result of the backstop, CIPFA expects a significant increase in the number of financial statements that will be published with ‘modified’ opinions.
The Statement of Responsibilities requires the CFO to declare that the accounts give a true and fair view at the reporting date. This declaration requires a professional judgment based on confidence in the reliability of financial systems. A modified opinion on prior-year accounts could significantly impact this judgment.
CIPFA hosted a roundtable which brought together experienced local government CFOs from across England to explore common themes and considerations which they will focus on when seeking assurance that the accounts are true and fair. The discussion reflected three main questions:
- How can you gain assurance that your accounts are true and fair?
- At what point do you feel you can no longer sign the accounts as true and fair?
- What is the process you would follow if you couldn’t sign the accounts as true and fair?
2. Gaining assurance your accounts are true and fair
CFOs identified several key areas for gaining assurance when signing accounts. While an unmodified opinion was not a primary consideration for all CFOs, the strength of internal controls and the presence of key processes were considered far more crucial. Key areas of focus included:
Internal control environment
Strong internal controls are paramount for ensuring the accuracy, completeness, and reliability of all financial data used for decision-making, reporting, and compliance.
Internal audit functions should comply with Global Internal Audit Standards in the UK Public Sector which provide a framework for objectivity, independence, and professional competence within the internal audit function. This means internal audit functions are ideally positioned to assess the effectiveness of the internal control environment within a local authority.
CFOs should review internal audit reports to identify any significant control weaknesses or deficiencies. Based on the audit findings, CFOs should assess whether existing internal controls are adequate to effectively address the authority's specific risks and effective in achieving the desired outcomes.
Key processes
CFOs stressed the importance of key processes such as regular reconciliations of control accounts (eg cash). Carrying out these processes regularly is vital in ensuring that the figures used in the financial statements are accurate.
Key stakeholders
Although the S151 officer's name appears on the Statement of Responsibilities, they are signing on behalf of the authority. Ensuring the accounts are true and fair is a collective responsibility, as emphasised by the Financial Management Code (FM Code). The first two standards of the FM Code place the responsibility of demonstrating value for money on the group of elected member and officers with collective financial responsibility and compliance with the CIPFA Statement of the Role of the Chief Financial Officer in Local Government.
It is essential to engage with key individuals such as department heads, the monitoring officer, and the head of paid service. Asking the right questions to these colleagues is crucial, as they possess valuable information and uphold integrity in their roles. It's important to foster an open environment where colleagues are expected to share relevant information transparently. The role of the CFO in public service organisations discusses in more detail the relationships that are critical to CFOs and organisational environment and culture.
Documenting your judgement
CFOs discussed the increased importance of documenting the rationale behind their decision to certify the accounts as true and fair. Some suggested adopting a report similar to a Section 25 statement, which could be published alongside the accounts.
3. Issues encountered when signing accounts as true and fair
CFOs agreed that it is crucial to take responsibility and avoid seeking excuses for not signing off on the accounts. A disclaimer opinion issued simply because of time constraints related to statutory deadlines should not prevent a CFO from signing the accounts as true and fair, assuming they are confident the accounts are accurate.
Known errors
Submitting draft accounts with known errors is inappropriate. If errors are identified, they must be corrected before the accounts are finalised and submitted for audit. If this delays the publication of the draft accounts beyond the statutory deadline, then the authority must publish a notice stating that it has not been able to publish its accountability statements and its reasons for this, as per the Accounts and Audit (Amendment) Regulations 2024.
Uncertainties
Uncertainties are an inherent part of the production of the annual accounts and an additional uncertainty due to a disclaimed opinion could relate to the opening balances or prior year comparatives. However, transparency is key when publishing draft accounts. Uncertainties should be clearly disclosed in the accounts; appropriate areas of the accounts might include:
- Narrative Report
- Contingent Liabilities
- Going Concern
- Significant Judgments and Estimates
4. Process to follow if you cannot sign the accounts as true and fair
Inevitably, in some cases it will not be possible for a CFO to build sufficient confidence in order to sign the Statement of Responsibilities in time for an audit backstop date, particularly when they are newly appointed. The aim must be to get into a position to be able to sign as true and fair as quickly as possible. Listed below are actions which the CFO should take:
Document concerns
Clearly document any concerns about the accounts that prevent signing them as true and fair. If appropriate, consider publishing this information alongside the accounts.
Seek advice
Consult with the monitoring officer and the Ministry of Housing, Communities, and Local Government (MHCLG) for guidance. To enable draft accounts to be published, it may be appropriate in some cases to modify the statement of responsibilities to state what areas the CFO has no confidence over. However, due consideration must be given to any consequences of modifying the statement, such as press coverage, local politics and possibility of intervention from MHCLG.
Develop an action plan
The CFO must express the reason for not signing (eg concerns over certain issues), while also providing an action plan to address the matter. For example, the CFO should outline any steps taken in response to statutory recommendations from auditors, showing the corrective measures being implemented.
5. Conclusion
CFOs must take full responsibility for signing the accounts as true and fair. While there may be rare instances where this is not possible, it is essential to establish processes that will allow the certification of accounts as true and fair in the future. CFOs can gain assurance through robust internal controls, key processes, and engagement with key stakeholders. Additionally, in the current climate, documenting these steps, any concerns and the rationale behind decisions, will be invaluable.
CIPFA would like to thank all those who contributed to this round table.