External audit is an essential element in the process of accountability for public money and makes an important contribution to the stewardship of public resources and the corporate governance of public services.

Audit in the public sector is underpinned by three fundamental principles:

· auditors are appointed independently from the bodies being audited;

· the scope of auditors' work is extended to cover not only the audit of financial statements but also value for money and the conduct of public business; and

· auditors may report aspects of their work widely to the public and other key stakeholders.

The duties and powers of auditors appointed by the Audit Commission are set out in the Audit Commission Act 1998 and the Local Government Act 1999 and the Commission's statutory Code of Audit Practice. Under the Code of Audit Practice, appointed auditors are also required to comply with the current professional standards issued by the independent Auditing Practices Board.

Appointed auditors act quite separately from the Commission and in meeting their statutory responsibilities are required to exercise their professional judgement independently of both the Commission and the audited body.

Document Control

Author Kate Handy: Graham West

Filename HFRSA 200809 Outline Audit Plan & Fee Draft (1.2).doc

Status of our reports

The Statement of Responsibilities of Auditors and Audited Bodies issued by the Audit Commission explains the respective responsibilities of auditors and of the audited body. Reports prepared by appointed auditors are addressed to non-executive directors/members or officers. They are prepared for the sole use of the audited body. Auditors accept no responsibility to:

· any director/member or officer in their individual capacity; or

· any third party.

Copies of this report

If you require further copies of this report, or a copy in large print, in Braille,
on tape, or in a language other than English, please call 0844 798 7070.

Contents

Introduction 4

Responsibilities 5

Fees 6

Specific actions Hampshire Fire and Rescue Service Authority could take to reduce its audit fees 7

Process for agreeing any changes in audit fees 7

Auditor's report on the financial statements 8

Financial statements 8

VFM conclusion 8

Fire and rescue performance assessment framework 10

Advice and assistance 11

The audit and inspection team 12

Quality of service 12

Planned outputs 13

Appendix 1 - Work under the Code of Audit Practice 14

Financial statements 14

Value for money conclusion 14

Use of resources assessment 14

Data quality 14

Whole of government accounts 15

National Fraud Initiative 15

Appendix 2 - Basis for fee 16

Assumptions 16

Introduction

1 This plan sets out the audit and inspection work that we propose to undertake for the 2008/09 financial year. The plan is based on the Audit Commission's
risk-based approach to audit planning and the requirements of moving towards Comprehensive Area Assessment (CAA). It reflects:

· audit and inspection work specified by the Audit Commission for 2008/09;

· current national risks relevant to your local circumstances; and

· your local risks and improvement priorities.

2 During 2008/09, the role of Relationship Manager will be replaced by the post of Comprehensive Area Assessment Lead (CAAL). The CAAL will provide the focal point for the Commission's work in your local area, lead the CAA process, and ensure that the combined inspection programme across all inspectorates is tailored to the level and nature of risk for the area and its constituent public bodies. The Commission has become the statutory gatekeeper of all inspection activity involving local authorities.

3 As we have not yet completed our audit for 2007/08 the audit planning process for 2008/09, including the risk assessment, will continue as the year progresses and the information and fees in this plan will be kept under review and updated as necessary.

Responsibilities

4 We comply with the statutory requirements governing our audit and inspection work, in particular:

· the Audit Commission Act 1998;

· the Local Government Act 1999;

· the Fire and Rescue Services Act 2004; and

· the Code of Audit Practice.

5 The Code of Audit Practice (the Code) defines auditors' responsibilities in relation to:

· the financial statements (including the annual governance statement); and

· the audited body's arrangements for securing economy, efficiency and effectiveness in its use of resources.

6 The Audit Commission's Statement of Responsibilities of Auditors and of Audited Bodies sets out the respective responsibilities of the auditor and the Authority. The Audit Commission has issued a copy of the Statement to every audited body.

7 The Statement summarises where the different responsibilities of auditors and of the audited body begin and end, and our audit work is undertaken in the context of these responsibilities.

Fees

8 The details of the structure of scale fees are set out in the Audit Commission's draft work programme and fee scales 2008/09. Scale fees are based on a number of variables, including the type, size and location of the audited body. The work programme and fee scales for 2008/09 identified inflation and audit pressures of around 41%. In addition the proposals for 2008/09 include bringing forward the charging for Use of Resources work into the year in which it is delivered. Currently the charging for this work is one year behind that to which the conclusion relates.

9 The total indicative fee for the audit and inspection work included in this audit and inspection plan for 2008/09 is for £108,250, which compares to the planned fee of £68,000 for 2007/08.

10 The Audit Commission's work programme and fee scales for 2008/09 has been out to consultation and has received some robust feedback from the authorities subject to them. The Audit Commission is currently considering the responses and how to address the concerns identified. This is likely to result in some changes to the programme and fee proposals. In order to consider the potential impact of changes we have set out the component elements of the audit fee where changes may occur.

11 A summary of the audit and inspection fee is shown in the table below. The fee is determined by audit risks identified, mandated work and basic assumptions. A detailed breakdown of the fee is included in Appendix 2.

Table 1 Audit and Inspection fee

12 The Audit Commission scale fee for the Hampshire Fire and Rescue Service Authority (FRA) is £118,000. The fee proposed for 2008/09 is + 13 per cent compared to the scale fee and is within the normal level of variation specified by the Commission.

13 In setting the fee, we have assumed that:

· the level of risk in relation to the audit of the financial statements is not significantly different from that identified for 2007/08; and

· internal audit undertakes appropriate work on all systems; and

· good quality working papers and records will be provided to support the financial statements by 1 June 2009.

Further details of our assumptions are outlined in Appendix 2.

14 The Audit Commission has the power to determine the fee above or below the scale fee where it considers that substantially more or less work is required than envisaged by the scale fee. The Audit Commission may, therefore, adjust the scale fee to reflect the actual work that needs to be carried out to meet the auditor's statutory responsibilities, based on the auditor's assessment of risk and complexity at a particular body.

15 It is a matter for the auditor to determine the work necessary to complete the audit and, subject to approval by the Audit Commission, to seek to agree an appropriate variation to the scale fee with the FRA. The Audit Commission expects normally to vary the scale fee by no more than 30 per cent (upwards or downwards). This fee then becomes payable.

16 The fee (plus VAT) will be charged in 12 equal instalments from April 2008 to March 2009.

Specific actions Hampshire Fire and Rescue Service Authority could take to reduce its audit fees

17 The Audit Commission requires its auditors to inform an authority of specific actions it could take to reduce its audit fees. We have identified the following actions Hampshire FRSA could take.

· ensure recommendations from earlier reports are fully addressed.

· ensure accounts preparation complies with SORP requirements and is supported with a high standard of working papers.

Process for agreeing any changes in audit fees

18 As set out in paragraph 4, we expect that the initial risk assessment may change as the year progress. Where this is the case, we will discuss this in the first instance with the Director of Corporate Services. Supplements to the plan will be issued to record any revisions to the risk and the impact on the fee.

Auditor's report on the financial statements

19 We are required to issue an audit report giving our:

· opinion on whether the financial statements present fairly the financial position of the Authority as at 31 March 2009; and

· conclusion on whether the Authority has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources.

Financial statements

20 We have not undertaken a risk assessment for our audit of the financial statements as many of the specific risks may only become apparent after we have completed our 2007/08 audit. A separate opinion audit plan for the audit of the financial statements will be issued in December 2008.

VFM conclusion

21 In reaching our conclusion, we will review evidence that is relevant to the Authority's performance management and financial management arrangements.

22 The work identified to support our VFM conclusion for 2008/09 falls directly out of the work mandated by the Audit Commission, as follows:

Use of Resources

23 The Audit Commission has specified that auditors will complete a use of resources assessment for 2008/09. This will be a new assessment forming part of the CAA framework for 2009.

24 The approach to the new use of resources assessment has been subject to consultation and will be finalised after April 2008. Further information about our use of resources work for 2008/09 will be provided once the approach has been confirmed. For each of the significant risks identified in relation to our use of resources work, we consider the arrangements put in place by the Authority to mitigate the risk, and plan our work accordingly.

Data Quality

25 During 2008/09 fire and rescue auditors will be required to undertake audit work in relation to specified performance indicators to support the service assessment element of CAA.

Other mandated work

26 Also included in the mandated programme are relatively short pieces of work related to:

· whole of government accounts (WGA) returns. The Commission has specified a proportionate approach to the audit of the consolidation packs to WGA. From 2008/09 these will be based on international accounting standards (IFRS), and

· National Fraud Initiative (NFI).

.

Fire and rescue performance assessment framework

Table 2 Summary of inspection activity

Advice and assistance

27 Under paragraph 9 of Schedule 2A of the Audit Commission Act 1998 we have powers to provide 'advice and assistance' (A&A) to another public body where this is requested.

28 If you wish the Commission to provide additional services under these powers, please contact Kate Handy in the first instance.

The audit and inspection team

29 The key members of the audit and inspection team for the 2008/09 audit are shown in the table below.

Table 3 Audit and inspection team

Quality of service

30 We are committed to providing you with a high quality service. If you are in any way dissatisfied, or would like to discuss how we can improve the service, please contact me in the first instance. Alternatively, you may wish to contact the Neil Childs, Head of Operations.

31 If we are unable to satisfy your concerns, you have the right to make a formal complaint to the Audit Commission. The complaints procedure is set out in the leaflet `Something to Complain About', which is available from the Commission's website or on request.

Planned outputs

32 Reports will be discussed and agreed with the appropriate officers before being issued to the Governance Committee.

Table 4 Planned outputs

Appendix 1 - Work under the Code of Audit Practice

Financial statements

1 We will carry out our audit of the financial statements in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board (APB).

2 We are required to issue an opinion on whether the financial statements present fairly, in accordance with applicable laws and regulations and the Statement of Recommended Practice on Local Authority Accounting in the United Kingdom 2008, the financial position of the FRA as at 31 March 2009 and its income and expenditure for the year.

3 We are also required to review whether the Annual Governance Statement has been presented in accordance with relevant requirements, and to report if it does not meet these requirements or if the Annual Governance Statement is misleading or inconsistent with our knowledge of the Authority.

Value for money conclusion

4 The Code requires us to issue a conclusion on whether the FRA has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. This is known as the value for money conclusion. The Code also requires me to have regard to a standard set of relevant criteria, issued by the Audit Commission, in arriving at my conclusion.

5 In meeting this responsibility, we will review evidence that is relevant to the Authority's corporate performance management and financial management arrangements. Where relevant work has been undertaken by other regulators, we will normally place reliance on their reported results to inform our work.

6 We will also follow up audit work from previous years to assess progress in implementing agreed recommendations.

Use of resources assessment

7 The approach to the use of resources assessment for 2008/09 has been subject to a consultation process which ended in February 2008. The Commission is considering the responses to the consultation and will finalise the assessment framework after April 2008. We will provide further information on the work needed for the assessment once the approach has been confirmed.

Data quality

8 Auditors will be required to undertake audit work in relation to data quality which will be directly linked to the VFM conclusion and the use of resources assessment.

9 The approach to data quality is being considered as part of the use of resources framework and we will provide further information on the work needed once the framework has been finalised. As part of the approach, the Audit Commission will specify work on fire performance indicators.

Whole of government accounts

10 We are required to review and report on your WGA consolidation pack in accordance with the approach agreed with HM Treasury and the National Audit Office.

National Fraud Initiative

11 From 2008/09 work relating to the National Fraud Initiative will be carried out directly by the Commission under its new data matching powers under the Serious Crime Act 2007. The Commission will be consulting audited bodies on the work programme and fee scales for the National Fraud Initiative later this year.

Appendix 2 - Basis for fee

1 The Audit Commission is committed to targeting its work where it will have the greatest effect, based upon assessments of risk and performance. This means planning work to address areas of risk relevant to our audit responsibilities and reflecting this in the audit fees. It also means making sure that our work is coordinated with the work of other regulators, and that our work helps you to improve.

2 The risk assessment process starts with the identification of the significant financial and operational risks applying at the FRA with reference to:

· our cumulative knowledge of the FRA;

· planning guidance issued by the Audit Commission;

· the specific results of previous and ongoing audit work;

· interviews with FRA officers;

· liaison with internal audit; and

· the results of other review agencies' work where relevant.

Assumptions

3 In setting the fee, we have assumed that:

· the level of risk in relation to the audit of the financial statements is not significantly different from that identified for 2007/08;

· you will inform us of significant developments impacting on our audit;

· internal audit meets the appropriate professional standards;

· internal audit undertakes appropriate work on all systems that provide material figures in the financial statements sufficient that we can place reliance for the purposes of our audit;

· good quality working papers and records will be provided to support the financial statements by [date];

· requested information will be provided within agreed timescales; and

· prompt responses will be provided to draft reports.

4 Where these assumptions are not met, we will be required to undertake additional work which is likely to result in an increased audit fee. The fee for the audit of the financial statements will be re-visited when we issue the opinion audit plan.

5 Changes to the plan will be agreed with you. These may be required if:

· new residual audit risks emerge;

· additional work is required by the Audit Commission or other regulators; or

· additional work is required as a result of changes in legislation, professional standards or as a result of changes in financial reporting.

6 Below is a detailed breakdown of the audit and inspection fee for 2008/09.

Table 5 Detailed audit and inspection fee