© 2014 Grant Thornton UK LLP. All rights reserved. Accounting and Reporting Developments An Auditor's Perspective

© 2014 Grant Thornton UK LLP. All rights reserved. What am I covering today? Accounting developments Sector developments Recurring themes CCG update Audit Committee role on Governance

© 2014 Grant Thornton UK LLP. All rights reserved. Accounting Developments No major new accounting standards Exemption from applying IAS 27 no longer applies to NHS charities Modified absorption accounting Accounting arrangements for CCGs

© 2014 Grant Thornton UK LLP. All rights reserved. IAS 27 Consolidated and separate financial statements Controlled: power to govern AND benefit from activities

© 2014 Grant Thornton UK LLP. All rights reserved. Is it material? Size Nature Context What could make a charity material from a qualitative point of view?

© 2014 Grant Thornton UK LLP. All rights reserved. What would consolidation mean for you ? Although there are some technical issues to overcome on consolidation these are not expected to cause difficulties Finance Dept capacity is probably biggest threat No change on single entity statements and trusts will not be assessed on consolidated results Audit Committee will need to review audit findings report on results of charity

© 2014 Grant Thornton UK LLP. All rights reserved. Absorption accounting Applies to Transfer of Functions within the NHS For 2013/14 will affect –residual transfers under Transforming Community Services –transfers to provider trusts from PCTs –in year mergers Separate rules for CCGs

© 2014 Grant Thornton UK LLP. All rights reserved. Absorption accounting Modified absorption accounting Demised bodies 1 April 2013 Account for own transactionsAdjustment to opening balances No restatement of comparatives Net assets balanced by gain in SOCI Net liabilities balanced by loss in SOCI Net assets or liabilities balanced by adjustment to retained earnings Recreate revaluation reserve

© 2014 Grant Thornton UK LLP. All rights reserved. Property, plant and equipment Transfer at existing book value Consider valuation and impairment on receipt Valuation 31 March 2014

© 2014 Grant Thornton UK LLP. All rights reserved. NHSE Proposals for CCGs Disaggregation between CCGs not possible but Transfer Orders still remain valid –only PPE and related balances transfer –other balances (including continuing care provisions) accounted for by NHSE Clarification required for –partially completed spells at year end –accounting from 1 April 2014

© 2014 Grant Thornton UK LLP. All rights reserved. Sector Developments Changes under Health and Social Care Act Maternity pathways

© 2014 Grant Thornton UK LLP. All rights reserved. Maternity Services CCG pay in full for each pathway as it commences Matters to resolve –arrangements for patients being treated on 1 April 2013 –value of work still to be performed at year end Accounting implications –provider trusts? –CCGs?

© 2014 Grant Thornton UK LLP. All rights reserved. Recurring Themes Judgements and estimates Financial resilience and going concern Agreement of balances Income / expenditure recognition Remuneration disclosures

© 2014 Grant Thornton UK LLP. All rights reserved. Critical judgments and estimates Critical judgementsEstimates Application of accounting policies Recognition of assets and liabilities Value at which transactions are recognised

© 2014 Grant Thornton UK LLP. All rights reserved. Critical judgments and major estimates Critical judgementsEstimates going concern classification of leases and PFI schemes timing of revenue recognition identification of provisions Whether to consolidate charity impairment of assets asset valuations asset lives provision balances

© 2014 Grant Thornton UK LLP. All rights reserved. Going concern and financial resilience Is the going concern basis appropriate? –do you have assurance over cash flows? –has support been confirmed where necessary? Are any material uncertainties adequately disclosed?

© 2014 Grant Thornton UK LLP. All rights reserved. Evidence Short and medium term budgets Short and medium term cash flow forecasts Agreed contracts Recent reports from regulatory bodies

© 2014 Grant Thornton UK LLP. All rights reserved. Agreement of balances Continues to be a difficult area Establishing arrangements with CCGs Treatment of legacy balances from PCTs Is reporting consistent with your knowledge of contract performance and disputes? Do you understand reasons for material reported differences?

© 2014 Grant Thornton UK LLP. All rights reserved. Income / expenditure recognition Provider trusts recognise significant deferred income which isn't matched by commissioners Do you understand, and agree with, judgements taken in respect of –income recognition by providers –expenditure recognition by commissioners

© 2014 Grant Thornton UK LLP. All rights reserved. Remuneration disclosures Remuneration Report disclosures continue to be a sensitive area Key areas –Senior Manager Pay –Pay Multiples –Severance Pay –Off payroll payments

© 2014 Grant Thornton UK LLP. All rights reserved. CCG Update Accounts Direction and Annual Reporting Guidance Working with Service Organisations Governing Body

© 2014 Grant Thornton UK LLP. All rights reserved. Accounts Direction and Annual Reporting Guidance Formal Accounts Direction required to confirm –relative status of Guidance against NHS MfA –approach to legacy balances No date announced for publication of the final Accounts Direction or ARG –very long with considerable duplication –sections on Annual Report and Governance are confusing

© 2014 Grant Thornton UK LLP. All rights reserved. Governance Statements for CCGs NHSE provide template format which covers 1 April 2013 to date accounts signed Key issues to consider –are processes adequately disclosed? –level of assurance? –significance of weaknesses?

© 2014 Grant Thornton UK LLP. All rights reserved. When do you need a Service Organisation report? Determine whether you are dependent on controls operated by a third party Consider extent of reliance on –Commissioning Support Units (CSUs) –Shared Business Services (SBS) –Electronic Staff Records (ESR)

© 2014 Grant Thornton UK LLP. All rights reserved. What should you do? Assess quality of assurance taking into account –controls operated by entity –whether identified controls are considered appropriate –items highlighted in service organisation report –response by management to any such matters Consider implications for Governance Report Consider external audit findings

© 2014 Grant Thornton UK LLP. All rights reserved. Governing Body Have arrangements been made for Governing Body to approve the Annual Report and Accounts? What assurance are they seeking from Audit Committee?

© 2014 Grant Thornton UK LLP. All rights reserved. Role of Audit Committees on final Annual Report and Accounts

© 2014 Grant Thornton UK LLP. All rights reserved. What should you do now? How did it work last year? –any unpleasant surprises? –what would you want done differently? Do you understand key risks raised by auditors? Have you been briefed on major risk areas? Have you agreed timetable?

© 2014 Grant Thornton UK LLP. All rights reserved. Final Audit Committee Are you happy with assurance over –Accounts –Quality Accounts –Governance Statement –Annual Report including Remuneration Report Are accounts consistent with in year expectations? Response to external auditors report and in particular response on "unadjusted audit errors"

© 2014 Grant Thornton UK LLP. All rights reserved. Where do you get assurance over Governance? Service organisation reports (where applicable) Head of internal audit Board Assurance Framework Clinical Audit External audit progress reports Accountable officer Audit and other Committees