2 September 2019
During the external audit process, the focus tends to be on the annual report and accounts – a comprehensive document which contains the independent auditor’s formal report on the financial statements.
A second, very important, output from the audit process is the auditors’ management letter.
It is a requirement of International Standards on Auditing that the auditors communicate with those charged with governance at the trust, and this is defined as the board of trustees and senior leadership team. The communication should include, amongst other things; information regarding the audit approach and scope, any adjustments to the figures that have been identified during the audit, details of financial risks that have been highlighted and any expected modifications to the audit opinion.
A key section for academy trusts is the summary of issues identified during the audit and recommendations from the auditor for their resolution. This is an area where auditors can make a valuable contribution to the academy trust. A good audit management letter will include thoughtful and precisely defined points for action, which are appropriately graded to ensure that high-risk issues are tackled immediately.
We encourage all participants in the audit process to engage with the audit team on their summary of findings and make sure that the detail is fully understood and accurately communicated. The reaction of the leadership team to management letter points is an indicator of the culture within the organisation, with a willingness to engage and address concerns demonstrating a healthy approach to compliance matters.
Lord Agnew, Parliamentary Under-Secretary of State for the School System, has repeatedly referred to the value he places in audit management letters and he has encouraged trust boards to implement auditor recommendations in a timely manner. In April this year, Lord Agnew wrote to firms of academy auditors and made it clear that the Department is using auditor management letters to help assess the quality of the governance and control framework in trusts.
The ESFA recently issued some guidance for academy trusts on the subject of audit management letters. The guidance is part of a series of ESFA financial management good practice guides and a link to the guidance is available here. This is a useful reference source for senior leadership teams so they can assess the effectiveness of communication with their auditors. It is also a helpful reminder for auditors when they are considering the layout and content of their management letter for the 2019 audit season.
We present our audit management letters at the meeting to approve the annual report and accounts, and we find that they can prompt lively discussion and debate, as well as putting the audit process in to context. The ESFA guidance should help all interested parties at academy trusts to understand what to expect from their auditors.
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