Planning and Interim Audit Highlights - Nottingham City Homes

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3 Key audit issues and risks (continued) Audit Issue Accounting for Provisions As per FRS 12, a provision can be recognised if the following can be demonstrated; ■ ■ ■ a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event); payment is probable ('more likely than not'), and the amount can be estimated reliably. As at 31 March 2011, there was a provision of £2.8m in relation to the NCH restructure and redundancy programme. Interim Update and Impact on our audit Interim update Discussions with management have confirmed that part of the 2010/11 provision has been released during the year and further costs are due be incurred during 2012/13, requiring additional provisions to be recognised. Impact on audit As part of the final audit, we will confirm that movements in provisions have been correctly accounted for in the year. We will also pick a sample of redundancy and associated costs and agree to supporting documents and calculations. Expenditure Cut Off Repairs and Maintenance is a significant cost for NCH with services provided through NCH’s Direct Labour Organisation (DLO), with all costs directly reimbursed by the Council once jobs are complete. It is important that this expenditure and associated income is correctly recognised in the accounts of NCH, recorded in the correct period and that stock and work in progress (WIP) are identified and accounted for appropriately. Interim update We have attended the year end stock take and documented processes and controls over the processing and management review of non-pay expenditure. Impact on audit During our final audit we will review cut off procedures to assess whether costs are accounted for in the correct period and work in progress is correctly recognised. We will also review the accounting for variations and adjustments highlighted as a result of the year end stock take. © 2012 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 5
4 Timetable and reporting Timing of our work We commenced our audit of NCH in February 2012. We have summarised below the timeline for our work in 2011/12 to indicate when each component of the audit will be delivered and how this will be aligned to your reporting dates. From 2012/13 onwards, our planning will commence from September. February 2012 KPMG commenced audit planning May 2012 Presentation of Planning and Interim Audit Memorandum to Audit Committee 11 June 2012 Final audit commences July 2012 Presentation of Highlights Memorandum and Management Letter to Audit Committee Sep 2011 Jan 2012 Feb Mar Apr May Jun Jul Aug Sep 5 March 2012 Interim audit starts June 2012 Final Audit Clearance Meeting August 2012 Audit opinion issued Fees Our fees for the 2011/12 audit (excluding VAT) is £19,000. The fee based on the following assumptions: • We will not charge out of pocket expenses; • Your management will prepare financial statements in-house and to a good standard. These will be ready on the first day of our final accounts audit – 11 June 2012; • A full Prepared by Client list is available on the first day of the audit – 11 June 2012; • We will only receive two draft iterations of the financial statements (the first draft and a second draft) prior to the final set being made available for signing; • We are able to conduct normal audit procedures; • The annual report is available on the first day of our final accounts audit; • We are able to place reliance upon the work of your internal auditors (to the extent that work is agreed at the outset of each financial year); • There are no significant changes to the size or scale of operations of NCH; and • Group reporting to Nottingham City Council auditors is not required. If there are any variances to the above timetable or information is not made available to us in a timely manner, we will discuss the impact on our audit fee with you before any additional costs are incurred. © 2012 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 6
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