LCRCA Audit Strategy Memorandum 2020-21

Audit Strategy Memorandum
Contents
01 Engagement and responsibilities summary

02 Your audit engagement team
03 Audit scope, approach and timeline
04 Significant risks and other key judgement areas
05 Value for Money
06 Fees for audit and other services
07 Our commitment to independence
08 Materiality and misstatements
Appendix – Key communication points
This document is to be regarded as confidential to Liverpool City Region Combined Authority. It has been prepared for the sole use of the Audit and Governance Committee as the appropriate sub-committee charged with
governance. No responsibility is accepted to any other person in respect of the whole or part of its contents. Our written consent must first be obtained before this document, or any part of it, is disclosed to a third party.
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Members of the Audit and Governance Committee Mazars LLP
Liverpool City Region Combined Authority One St Peter’s Square
1 Mann Island Manchester
Liverpool M2 3DE
L3 1 BP
19 April 2021
Dear Sirs / Madams
Audit Strategy Memorandum – Year ending 31 March 2021

We are pleased to present our Audit Strategy Memorandum for Liverpool City Region Combined Authority for the year ending 31 March 2021. The purpose of this document is to summarise our audit approach, highlight significant
audit risks and areas of key judgements and provide you with the details of our audit team. As it is a fundamental requirement that an auditor is, and is seen to be, independent of its clients, section 7 of this document also
summarises our considerations and conclusions on our independence as auditors. We consider two-way communication with you to be key to a successful audit and important in:
• reaching a mutual understanding of the scope of the audit and the responsibilities of each of us;
• sharing information to assist each of us to fulfil our respective responsibilities;
• providing you with constructive observations arising from the audit process; and
• ensuring that we, as external auditors, gain an understanding of your attitude and views in respect of the internal and external operational, financial, compliance and other risks facing Liverpool City Region Combined Authority
which may affect the audit, including the likelihood of those risks materialising and how they are monitored and managed.
With that in mind, we see this document, which has been prepared following our initial planning discussions with management, as being the basis for a discussion around our audit approach, any questions, concerns or input you
may have on our approach or role as auditor. This document also contains an appendix that outlines our key communications with you during the course of the audit,
Client service is extremely important to us and we strive to provide technical excellence with the highest level of service quality, together with continuous improvement to exceed your expectations so, if you have any concerns or
comments about this document or audit approach, please contact me on 07795 506766.
Yours faithfully
Mark Dalton
Mazars LLP
Mazars LLP – One St Peter’s Square, Manchester, M2 3DE
Tel: 0161 234 9200 – www.mazars.co.uk
Mazars LLP is the UK firm of Mazars, an integrated international advisory and accountancy organisation. Mazars LLP is a limited liability partnership registered in England and Wales with registered number OC308299 and with its registered office at Tower Bridge House, St Katharine’s Way,
London E1W 1DD.
We are registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales. Details about our audit registration can be viewed at www.auditregister.org.uk under reference number C001139861. VAT number: 839 8356 73
Section 01:
Engagement and
responsibilities summary
1. Engagement and responsibilities summary
Overview of engagement
We are appointed to perform the external audit of Liverpool City Region Combined Authority (the Authority) for the year to 31 March 2021. The scope of our engagement is set out in the Statement of Responsibilities of Auditors
and Audited Bodies, issued by Public Sector Audit Appointments Ltd (PSAA) available from the PSAA website: https://www.psaa.co.uk/managing-audit-quality/statement-of-responsibilities-of-auditors-and-audited-bodies/. Our
responsibilities are principally derived from the Local Audit and Accountability Act 2014 (the 2014 Act) and the Code of Audit Practice issued by the National Audit Office (NAO), as outlined below.
Audit opinion
We are responsible for forming and expressing an opinion on the financial statements. Our Fraud
audit does not relieve management or the Audit and Governance Committee, as those The responsibility for safeguarding assets and for the prevention and detection of fraud,
charged with governance, of their responsibilities. error and non-compliance with law or regulations rests with both those charged with
governance and management. This includes establishing and maintaining internal controls
over reliability of financial reporting.
Going concern As part of our audit procedures in relation to fraud we are required to enquire of those
The Authority is required to prepare its financial statements on a going concern basis by the charged with governance, including key management as to their knowledge of instances of
Code of Practice on Local Authority Accounting. The Treasurer is responsible for the fraud, the risk of fraud and their views on internal controls that mitigate the fraud risks. In
assessment of whether is it appropriate for the Authority to prepare it’s accounts on a going accordance with International Standards on Auditing (UK), we plan and perform our audit so
concern. basis As auditors, we are required to obtain sufficient appropriate audit evidence as to obtain reasonable assurance that the financial statements taken as a whole are free
regarding, and conclude on the appropriateness of the Treasurer’s use of the going concern from material misstatement, whether caused by fraud or error. However our audit should not
basis of accounting in the preparation of the financial statements and the adequacy of be relied upon to identify all such misstatements.
disclosures made.
Value for money

Reporting to the NAO
We are also responsible for forming a view on the arrangements that the Authority has in
We report to the NAO on the consistency of the Authority’s financial statements with its
place to secure economy, efficiency and effectiveness in its use of resources. We discuss
Whole of Government Accounts (WGA) submission.
our approach to Value for Money work further in section 5 of this report.
Electors’ rights
The 2014 Act requires us to give an elector, or any representative of the elector, the opportunity to question us about the accounting records of the Authority and consider any objection made to the accounts.
We also have a broad range of reporting responsibilities and powers that are unique to the audit of local authorities in the United Kingdom
Engagement and Your audit Audit scope, Significant risks and key Fees for audit and Our commitment to Materiality and
Value for money Appendices
responsibilities summary engagement team approach and timeline judgement areas other services independence misstatements
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Section 02:
Your audit engagement team
2. Your audit engagement team
Your external audit service continues to be led by Mark Dalton. A summary of key team members are
detailed below:
Who Role E-mail
Mark Dalton Engagement Lead [email protected]
Mark Outterside Engagement Senior Manager [email protected]
Harry Short Engagement Assistant Manager [email protected]
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Section 03:
Audit scope, approach and timeline
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3. Audit scope, approach and timeline
Audit scope
Our audit approach is designed to provide an audit that complies with all professional requirements.
Our audit of the financial statements will be conducted in accordance with International Standards on Auditing (UK), relevant ethical and professional standards, our own audit approach and in accordance with the terms of our
engagement. Our work is focused on those aspects of your business which we consider to have a higher risk of material misstatement, such as those impacted by management judgement and estimation, application of new
accounting standards, changes of accounting policy, changes to operations or areas which have been found to contain material errors in the past.
Audit approach
Our audit approach is a risk based approach primarily driven by the risks we consider to result in a higher risk of material misstatement of the financial statements. Once we have completed our risk assessment, we develop our
audit strategy and design audit procedures in response to this assessment.
If we conclude that appropriately designed controls are in place then we may plan to test and rely upon these controls. If we decide controls are not appropriately designed, or we decide it would be more efficient to do so, we may
take a wholly substantive approach to our audit testing. Substantive procedures are audit procedures designed to detect material misstatements at the assertion level and comprise: tests of details (of classes of transactions,
account balances, and disclosures); and substantive analytical procedures. Irrespective of the assessed risks of material misstatement, which take into account our evaluation of the operating effectiveness of controls, we are
required to design and perform substantive procedures for each material class of transactions, account balance, and disclosure.
Our audit will be planned and performed so as to provide reasonable assurance that the financial statements are free from material misstatement and give a true and fair view. The concept of materiality and how we define a
misstatement is explained in more detail in section 8.
The diagram on the next page outlines the procedures we perform at the different stages of the audit.
COVID-19 working arrangements and impact on our auditor’s report

The accounts preparation and audit will once again be significantly impacted by the COVID-19 remote working arrangements and it is important that we continue to keep in close contact with the finance team and are able to
respond to emerging issues. The outline timetable on the following page is based on our current understanding of the national deadlines and the current working arrangements.
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Planning - March 2021 Interim - April 2021

• Planning visit and developing our understanding of the Authority • Documenting systems and controls
• Initial opinion and value for money risk assessments • Performing walkthroughs
• Considering proposed accounting treatments and accounting policies • Preliminary analytical review
• Developing the audit strategy and planning the audit work to be performed • Early substantive testing of transactions
• Agreeing timetable and deadlines • Reassessment of audit plan and revision if necessary
Completion - September 2021 Fieldwork - August - September 2021

• Final review and disclosure checklist of financial statements • Receiving and reviewing draft financial statements
• Final engagement lead review • Reassessment of audit plan and revision if necessary
• Agreeing content of letter of representation • Executing the strategy starting with significant risks and high risk areas
• Reporting to the Audit and Governance Committee • Communicating progress and issues
• Reviewing subsequent events • Clearance meeting
• Signing the auditor’s report
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Group audit approach

The Authority prepares Group accounts and consolidates the following body:
• Merseytravel (including Mersey Ferries and Merseytravel Passenger Transport Services Limited)
Mazars UK are the appointed auditor for Merseytravel. As such we are the appointed auditor for 100% of the Group’s total expenditure.
The approach to the Group audit is set out below:
Entity Auditor Scope Planned audit approach
We will:
Full-scope audit
Merseytravel Mazars LLP • complete full-scope audit procedures on Merseytravel’s financial statements; and
procedures
• review the consolidation process and adjustments made by LCRCA in preparing group financial statements.
We apply a separate materiality for the audit of the Group accounts as set out in Section 8.
We have not identified any significant risks for Group accounts purposes in relation to the components. The significant risks and areas of audit focus for the Authority as a single-entity are set out in section 4. Based on our initial
planning discussions we do not consider these significant risks to be risks for the component subsidiary companies.
On page 18, we highlight the procedures we plan to undertake in relation to the judgements the Authority has made around which of its group entities it consolidates into the Group Financial Statements, and how it consolidates the
transactions and balances into the Group financial statements.
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Working with internal audit Service organisations

We will utilise the work performed by internal audit to inform our audit risk assessment procedures. We will International Auditing Standards (UK) (ISAs) define service organisations as third party organisations that
meet with internal audit on a regular basis throughout the audit to discuss the progress and findings of their provide services to the Authority that are part of its information systems relevant to financial reporting. We are
work. required to obtain an understanding of the services provided by service organisations as well as evaluating the
design and implementation of controls over those services. The table below summarises the service
Management’s and our experts organisations used by the Authority and our planned audit approach.
Management makes use of experts in specific areas when preparing the Authority’s financial statements. We
also use experts to assist us to obtain sufficient appropriate audit evidence on specific items of account. Items of account Service organisation Audit approach
We plan to obtain assurance by

Item of account Management’s expert Our expert understanding the processes and
controls that the Authority has in
place to assure itself that
Mercer – Actuary for the transactions are processed
Defined benefit liability PwC as NAO’s consulting actuary Payroll Expenditure CGI
Merseyside Pension Fund correctly. Our testing will include
sample testing of transactions
District Valuer Service - Property based on evidence available from
Property, plant and We will use available third party information
Services - part of the Valuation the Authority rather than the shared
equipment valuation to challenge the valuer’s key assumptions.
Office Agency. service provider.
We will review the expert’s methodology in
Financial instrument calculating the fair value disclosures to
Link Asset Services
disclosures confirm the reasonableness of assumptions
used
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Section 04:
Significant risks and other key
judgement areas
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4. Significant risks and other key judgement areas
Following the risk assessment approach discussed in section 3 of this document, we have identified relevant Revenue recognition
risks to the audit of financial statements. The risks that we identify are categorised as significant, enhanced or
standard. The definitions of the level of risk rating are given below: International Standard on Auditing (ISA) 240 includes a rebuttable presumption that the fraud risk from revenue
recognition is a significant audit risk.
We recognise that the nature of revenue in local government differs significantly to the sources of income in the
Significant risk private sector. We also consider that there are limited incentives and opportunities to manipulate the way
A significant risk is an identified and assessed risk of material misstatement that, in the auditor’s judgment, income is recognised in local government.
requires special audit consideration. For any significant risk, the auditor shall obtain an understanding of the Based on our understanding of the Authority’s revenue streams we have rebutted the presumption that revenue
entity’s controls, including control activities relevant to that risk. recognition is a significant risk at the Authority. Our testing of revenue is focused on our standard procedures
and does not incorporate specific work on the risk of fraud in recognising revenue.
Enhanced risk
An enhanced risk is an area of higher assessed risk of material misstatement (‘RMM’) at audit assertion level
other than a significant risk. Enhanced risks require additional consideration but does not rise to the level of a
significant risk, these include but may not be limited to:
• key areas of management judgement, including accounting estimates which are material but are not
considered to give rise to a significant risk of material misstatement; and
• other audit assertion risks arising from significant events or transactions that occurred during the period.
Standard risk
This is related to relatively routine, non-complex transactions that tend to be subject to systematic processing
and require little management judgement. Although it is considered that there is a risk of material misstatement
(RMM), there are no elevated or special factors related to the nature, the likely magnitude of the potential
misstatements or the likelihood of the risk occurring.
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Specific identified audit risks and planned testing strategy

We have presented below in more detail the reasons for the risk assessment highlighted above, and also our testing approach with respect to significant risks. An audit is a dynamic process, should we change our view of risk or
approach to address the identified risks during the course of our audit, we will report this to the Audit and Governance Committee.
Significant risks
Description Fraud Error Judgement Planned response
1 Management override of controls We plan to address the management override of controls risk through
This is a mandatory significant risk on all audits due to the performing audit work over accounting estimates, journal entries and
unpredictable way in which such override could occur. significant transactions outside the normal course of business or otherwise
unusual.
Management at various levels within an organisation are in a unique
position to perpetrate fraud because of their ability to manipulate
accounting records and prepare fraudulent financial statements by
overriding controls that otherwise appear to be operating effectively.
Due to the unpredictable way in which such override could occur
there is a risk of material misstatement due to fraud on
all audits.
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Significant risks
2 Net defined benefit liability valuation In relation to the valuation of the Authority’s defined benefit pension liability
we will:
The net pension liability represents a material element of Liverpool
City Region Combined Authority's balance sheet. The Authority is • critically assess the competency, objectivity and independence of the
an admitted body of the Merseyside Pension Fund (MPF). MPF’s Actuary, Mercers;
The valuation of the Local Government Pension Scheme relies on a • Liaise with the auditors of the Merseyside Pension Fund to gain
number of assumptions, most notably around the actuarial assurance that the controls in place at the Pension Fund are operating
assumptions, and actuarial methodology which results in the effectively. This will include the processes and controls in place to ensure
Authority’s overall valuation. data provided to the Actuary by the Pension Fund for the purposes of the
There are financial assumptions and demographic assumptions IAS19 valuation is complete and accurate;
used in the calculation, such as the discount rate, inflation rates and
mortality rates. The assumptions should also reflect the profile of the • Review the appropriateness of the Pension Asset and Liability valuation
Authority’s employees, and should be based on appropriate data. methodologies applied by the Pension Fund Actuary, and the key
The basis of the assumptions is derived on a consistent basis year assumptions included within the valuation. This will include comparing
to year, or updated to reflect any changes. them to expected ranges, utilising information provided by PWC,
consulting actuary engaged by the National Audit Office; and
There is a risk that the assumptions and methodology used in
valuing the Authority’s pension obligation are not reasonable or • Agree the data in the IAS 19 valuation report provided by the Fund
appropriate to the Authority’s circumstances. This could have a Actuary for accounting purposes to the pension accounting entries and
material impact to the net pension liability in 2020/21. disclosures in the Authority’s financial statements.
In line with 2019/20 and the continuing Covid-19 pandemic, we will monitor
the valuation approach and whether a material uncertainty disclosure will be
required for 2020/21.
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Significant risks
3 Valuation of property, plant and equipment In relation to the valuation of property, plant & equipment we will:
The CIPFA Code requires that where assets are • critically assess the valuer’s scope of work, qualifications, objectivity and independence to
subject to revaluation, their year end carrying carry out the Authority’s programme of revaluations;
value should reflect the fair value at that date. • consider whether the overall revaluation methodology used by the Authority is in line with
The Authority approach is to conduct all industry practice, the CIPFA Code of Practice and the Authority's accounting policies;
required revaluations once every five years
with a full revaluation exercise completed in • critically assess the appropriateness of the underlying data and the key assumptions used
2018/19. There is a risk that individual assets in the valuer’s report, using available third party evidence;
not revalued since 2018/19 are not valued at
• assess whether valuation movements are in line with market expectations by using
their materially correct fair value.
information available from other sources; and
The valuation of Property, Plant & Equipment • critically assess the approach that the Authority adopts to ensure that assets not subject to
involves the use of a management expert (the revaluation since the last full valuation are materially correct, including considering the
valuer), and incorporates material assumptions robustness of that approach in light of the valuation information reported by the Authority’s
and estimates. There are risks relating to the valuers.
valuation process..
In line with 2019/20 and the continuing Covid-19 pandemic, we will monitor the valuation
approach and whether a material uncertainty disclosure will be required for 2020/21.
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Other key areas of management judgement and enhanced risks

1 Group Financial Statement Consolidation Process Our approach to auditing the Group Financial Statements has been detailed
on page 11.
Liverpool City Region Combined Authority has made judgements
around which of its group entities it consolidates into the Group
We will complement this work by our work over Liverpool City Region
Financial Statements, and how it consolidates the transactions and
Combined Authority’s Group consolidation process. In particular we will
balances into the Group. review the judgements relating to the entities that are assessed for
consolidation into the Group financial statements, and we will review and test
the method of consolidation of Merseytravel into the Group financial
statements.
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Section 05:
Value for Money
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5. Value for Money
The framework for Value for Money work

We are required to form a view as to whether the Authority has made proper arrangements for securing Obtaining an understanding of the Authority’s arrangements for each
economy, efficiency and effectiveness in its use of resources. The NAO issues guidance to auditors that
underpins the work we are required to carry out in order to form our view, and sets out the overall criterion specified reporting criteria. Relevant information sources will include:
and sub-criteria that we are required to consider. Planning and risk • NAO guidance and supporting information
The new Code of Audit Practice (the Code) has changed the way in which we report our findings in relation assessment • Information from internal and external sources including regulators
to Value for Money (VFM) arrangements from 2020/21. Whilst we are still required to be satisfied that the • Knowledge from previous audits and other audit work undertaken in the
Authority has proper arrangements in place, we will now report by exception in our auditor’s report where we year
have identified significant weakness in those arrangements. This is a significant change to the requirements • Interviews and discussions with staff and members
under the previous Code which required us to give a conclusion on the Authority’s arrangements as part of
our auditor’s report.
Under the new Code, the key output of our work on VFM arrangements will be a commentary on those
arrangements which will form part of the Auditor’s Annual Report.
Additional risk
Specified reporting criteria based Where our planning work identifies risks of significant weaknesses, we will
procedures and undertake additional procedures to determine whether there is a significant
The Code requires us to structure our commentary to report under three specified criteria: weakness.
evaluation
1. Financial sustainability – how the Authority plans and manages its resources to ensure it can
continue to deliver its services
2. Governance – how the Authority ensures that it makes informed decisions and properly manages its
risks We will provide a summary of the work we have undertaken and our
3. Improving economy, efficiency and effectiveness – how the Authority uses information about its judgements against each of the specified reporting criteria as part of our
costs and performance to improve the way it manages and delivers its services commentary on arrangements. This will form part of the Auditor’s Annual
Report.
Further details of the specified reporting criteria are provided on the following page. Reporting Our commentary will also highlight:
Our approach • Significant weaknesses identified and our recommendations for
improvement
Our work falls into three primary phases as outlined opposite. We need to gather sufficient evidence to
support our commentary on the Authority’s arrangements and to identify and report on any significant • Emerging issues or other matters that do not represent significant
weaknesses in arrangements. Where significant weaknesses are identified we are required to report these weaknesses but still require attention from the Authority.
to the Authority and make recommendations for improvement. Such recommendations can be made at any
point during the audit cycle and we are not expected to wait until issuing our overall commentary to do so.
Engagement and
Your audit Audit scope, Extended Significant risks and Fees for audit and Our commitment to Materiality and
responsibilities Value for money Appendices
engagement team approach and timeline auditor’s report key judgement areas other services independence misstatements
summary
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5. Value for money conclusion
Under the 2020 Code, we are required to structure our commentary on the Council’s ‘proper arrangements’ under three specified reporting criteria, which are expanded in the supporting guidance notes produced by the National
Audit Office:
Financial sustainability: how the body plans and manages its Governance: how the body ensures that it makes informed decisions Improving VFM: how the body uses information about its costs and
resources to ensure it can continue to deliver its services and properly manages its risks, including performance to improve the way it manages and delivers its services
• how the body ensures that it identifies all the significant financial • how the body monitors and assesses risk and how the body gains • how financial and performance information has been used to assess
pressures that are relevant to its short and medium-term plans and assurance over the effective operation of internal controls, including performance to identify areas for improvement
builds these into them arrangements to prevent and detect fraud
• how the body evaluates the services it provides to assess
• how the body plans to bridge its funding gaps and identifies • how the body approaches and carries out its annual budget setting performance and identify areas for improvement
achievable savings process
• how the body ensures it delivers its role within significant
• how the body plans finances to support the sustainable delivery of • how the body ensures effective processes and systems are in place partnerships, engages with stakeholders it has identified, monitors
services in accordance with strategic and statutory priorities to ensure budgetary control; to communicate relevant, accurate and performance against expectations, and ensures action is taken
timely management information (including non-financial information where necessary to improve
• how the body ensures that its financial plan is consistent with other where appropriate); supports its statutory financial reporting
plans such as workforce, capital, investment, and other operational requirements; and ensures corrective action is taken where needed • where the body commissions or procures services, how the body
planning which may include working with other local public bodies as ensures that this is done in accordance with relevant legislation,
part of a wider system • how the body ensures it makes properly informed decisions, professional standards and internal policies, and how the body
supported by appropriate evidence and allowing for challenge and assesses whether it is realising the expected benefits.
• how the body identifies and manages risks to financial resilience, transparency. This includes arrangements for effective challenge
e.g. unplanned changes in demand, including challenge of the from those charged with governance/audit committee
assumptions underlying its plans.
• how the body monitors and ensures appropriate standards, such as
meeting legislative/regulatory requirements and standards in terms
of officer or member behaviour (such as gifts and hospitality or
declarations/conflicts of interests).
5. Value for Money
Identified risks of significant weaknesses in arrangements

The NAO’s guidance requires us to carry out work at the planning stage to understand the Authority’s arrangements and to identify risks that significant weaknesses in arrangements may exist.
Although we have not fully completed our planning and risk assessment work, to date, we have not identified any risks that significant weaknesses in arrangements exist. We will report any identified risks to the Audit and
Governance Committee on completion of our planning and risk identification work.
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Section 06:
Fees for audit and other services
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6. Fees for audit and other services
Fees for work as the Authority’s appointed auditor

1The scale fee has been adjusted to take into account the additional
Details of the proposed 2019/20 and 2020/21 fees are set out below:
work required as a result of increased regulatory expectations in these
areas.
2 For 2020/21, new auditing standards have been introduced which will
Area of work 2020/21 Proposed Fee 2019/20 Actual Fee
lead to additional audit work not reflected in the scale fee. The
implementation of IFRS 16 Leases is deferred to the financial year
Scale Audit Fee £36,334 £36,334 2021/22.
Fee Variations 3 The additional audit cost in 2019/20 mainly relates to additional
testing and reporting of uncertainties in key estimates as a result of
Additional Testing on Defined Benefit Pensions Schemes and Property, Covid-19 and review of any potential impact on the Authority of the
£7,0671 £7,067
Plant and Equipment inspection and investigation of Liverpool City Council and the City
Additional testing as a result of the implementation of new auditing Mayor. Further detail will be set out in our Annual Audit Letter which
standards: ISA 220 (Revised): Quality control of an audit of financial will be issued following completion of the Whole of Government
£1,5002 - Accounts work.
statements; ISA 540 (Revised): Auditing accounting estimates and
related disclosures; and ISA570 (Revised) Going Concern; 4 The new Code of Audit Practice and associated changes to the way
in which we undertake and report our value for money work in 2020/21
Other additional costs TBC £9,0323
(as detailed in section 5) will require additional audit input. We expect
Sub-total £44,901 £52,433 the fee impact to be 15-20% of the statutory audit fee. The final fee will
take into account the extent of the additional work actually required.
Additional work arising from the change in the Code of Audit Practice TBC4 - We will continue to liaise with Management on any proposed changes
to the fee.
Total £44,9015 £52,433 5This is a proposed fee for 2020/21 at the point of the issue of our
ASM. This figure is subject to change and additional costs will be
discussed with management.
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6. Fees for audit and other services
Services provided to other entities within the Authority's group
Area of work 2020/21 Proposed Fee 2019/20 Actual Fee
Merseytravel £37,688 £41,220
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Section 07:
Our commitment to independence
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7. Our commitment to independence
We are committed to independence and are required by the Financial Reporting Council to confirm to you at We confirm, as at the date of this document, that the engagement team and others in the firm as appropriate,
least annually in writing that we comply with the FRC’s Ethical Standard. In addition, we communicate any Mazars LLP are independent and comply with relevant ethical requirements. However, if at any time you have
matters or relationship which we believe may have a bearing on our independence or the objectivity of the concerns or questions about our integrity, objectivity or independence please discuss these with Mark Dalton in
audit team. the first instance.
Based on the information provided by you and our own internal procedures to safeguard our independence as Prior to the provision of any non-audit services Mark Dalton will undertake appropriate procedures to consider
auditors, we confirm that in our professional judgement there are no relationships between us and any of our and fully assess the impact that providing the service may have on our auditor independence.
related or subsidiary entities, and you and your related entities creating any unacceptable threats to our
independence within the regulatory or professional requirements governing us as your auditors. No threats to our independence have been identified.
We have policies and procedures in place which are designed to ensure that we carry out our work with Any emerging independence threats and associated identified safeguards will be communicated in our Audit
integrity, objectivity and independence. These policies include: Completion Report.
• All partners and staff are required to complete an annual independence declaration;
• All new partners and staff are required to complete an independence confirmation and also complete
computer based ethical training;
• Rotation policies covering audit engagement partners and other key members of the audit team; and
• Use by managers and partners of our client and engagement acceptance system which requires all non-
audit services to be approved in advance by the audit engagement partner.
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Section 08:
Materiality and other misstatements
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8. Materiality and misstatements
Summary of initial materiality thresholds The assessment of what is material is a matter of professional judgement and is affected by our perception of
the financial information needs of the users of the financial statements. In making our assessment we assume
LCR CA initial Group initial that users:
Threshold threshold threshold
• Have a reasonable knowledge of business, economic activities and accounts;
£’000s £’000s
Overall materiality 7,500 9,500 • Have a willingness to study the information in the financial statements with reasonable diligence;
• Understand that financial statements are prepared, presented and audited to levels of materiality;
Performance materiality 6,000 7,125
• Recognise the uncertainties inherent in the measurement of amounts based on the use of estimates,
judgement and the consideration of future events; and
Specific materiality – Senior officer remuneration 5 5
disclosures including any associated exit packages • Will make reasonable economic decisions on the basis of the information in the financial statements.
Specific materiality – Related party transactions 50 50 We consider materiality whilst planning and performing our audit based on quantitative and qualitative factors.
Whilst planning, we make judgements about the size of misstatements which we consider to be material and which
Trivial threshold for errors to be reported to the Audit and 225 285 provides a basis for determining the nature, timing and extent of risk assessment procedures, identifying and
Governance Committee assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures.
The materiality determined at the planning stage does not necessarily establish an amount below which
Materiality uncorrected misstatements, either individually or in aggregate, will be considered as immaterial.
Materiality is an expression of the relative significance or importance of a particular matter in the context of We revise materiality for the financial statements as our audit progresses should we become aware of
financial statements as a whole. information that would have caused us to determine a different amount had we been aware of that information
at the planning stage.
Misstatements in financial statements are considered to be material if they, individually or in aggregate, could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial Our provisional materiality is set based on a benchmark of gross expenditure at the surplus/deficit on provision
statements. of services level. We will identify a figure for materiality but identify separate levels for procedures design to
detect individual errors, and also a level above which all identified errors will be reported to the Audit and
Judgements on materiality are made in light of surrounding circumstances and are affected by the size and Governance Committee.
nature of a misstatement, or a combination of both. Judgements about materiality are based on consideration of
the common financial information needs of users as a group and not on specific individual users. We consider that the gross expenditure at the surplus/deficit on provision of services remains the key focus of
users of the financial statements and, as such, we base our materiality levels around this benchmark.
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8. Materiality and misstatements
Materiality (continued) Reporting to the Audit and Governance Committee

We expect to set a materiality threshold at c. 1.8% of gross expenditure at the surplus/deficit on provision of The following three types of audit differences will be presented to the Audit and Governance Committee:
services. Based on the prior year audited accounts we anticipate the overall materiality for the year ending 31
March 2021 to be in the region of £7.5m (£8m in the prior year) for the single entity accounts and £9,5m (£8,5m • summary of adjusted audit differences;
in the prior year) for the group accounts.
• summary of unadjusted audit differences; and
After setting initial materiality, we continue to monitor materiality throughout the audit to ensure that it is set at
an appropriate level. • summary of disclosure differences (adjusted and unadjusted).
Performance Materiality
Performance materiality is the amount or amounts set by the auditor at less than materiality for the financial
statements as a whole to reduce, to an appropriately low level, the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the financial statements as a whole. Our initial
assessment of performance materiality is based on low inherent risk, meaning that we have applied 75% of
overall materiality as performance materiality.
Misstatements
We accumulate misstatements identified during the audit that are other than clearly trivial. We set a level of
triviality for individual errors identified (a reporting threshold) for reporting to the Audit and Governance
Committee that is consistent with the level of triviality that we consider would not need to be accumulated
because we expect that the accumulation of such amounts would not have a material effect on the financial
statements. Based on our preliminary assessment of overall materiality, our proposed triviality threshold is
£225k for the single entity accounts and £285k for the group accounts based on 3% of overall materiality. If you
have any queries about this, please do not hesitate to raise these with Mark Dalton.
30
Appendix: Key communication points
31
We value communication with Those Charged With Governance as a two way feedback process at the heart of • Our commitment to independence;
our client service commitment. ISA 260 (UK) ‘Communication with Those Charged with Governance’ and ISA
265 (UK) ‘Communicating Deficiencies In Internal Control To Those Charged With Governance And • Responsibilities for preventing and detecting errors;
Management’ specifically require us to communicate a number of points with you.
• Materiality and misstatements; and
Relevant points that need to be communicated with you at each stage of the audit are outlined below.
• Fees for audit and other services.
Form, timing and content of our communications
We will present the following reports: Key communication points at the completion stage to be included in our
Audit Completion Report
• Our Audit Strategy Memorandum;
• Significant deficiencies in internal control;
• Our Audit Completion Report; and
• Significant findings from the audit;
• Auditor’s Annual Report
• Significant matters discussed with management;
These documents will be discussed with management prior to being presented to yourselves and their
comments will be incorporated as appropriate. • Our conclusions on the significant audit risks and areas of
management judgement;
Key communication points at the planning stage as included in this Audit • Summary of misstatements;
Strategy Memorandum
• Management representation letter;
• Our responsibilities in relation to the audit of the financial statements;
• Our proposed draft audit report; and
• The planned scope and timing of the audit;
• Independence.
• Significant audit risks and areas of management judgement;
32
ISA (UK) 260 ‘Communication with Those Charged with Governance’, ISA (UK) 265 ‘Communicating Deficiencies In Internal Control To Those Charged With Governance And Management’ and other ISAs (UK) specifically require
us to communicate the following:
Required communication Where addressed
Our responsibilities in relation to the financial statement audit and those of management and those charged Audit Strategy Memorandum
with governance.
The planned scope and timing of the audit including any limitations, specifically including with respect to Audit Strategy Memorandum
significant risks.
With respect to misstatements: Audit Completion Report

• Uncorrected misstatements and their effect on our audit opinion;
• The effect of uncorrected misstatements related to prior periods;
• A request that any uncorrected misstatement is corrected; and
• In writing, corrected misstatements that are significant.
With respect to fraud communications: Audit Completion Report and discussion at Audit Committee,
• Enquiries of the Audit Committee to determine whether they have a knowledge of any actual, suspected or Audit Planning and Clearance meetings
alleged fraud affecting the entity;
• Any fraud that we have identified or information we have obtained that indicates that fraud may exist; and
• A discussion of any other matters related to fraud.
33
Significant matters arising during the audit in connection with the entity’s related parties including, Audit Completion Report
when applicable:
• Non-disclosure by management;
• Inappropriate authorisation and approval of transactions;
• Disagreement over disclosures;
• Non-compliance with laws and regulations; and
• Difficulty in identifying the party that ultimately controls the entity.
Significant findings from the audit including: Audit Completion Report

• Our view about the significant qualitative aspects of accounting practices including accounting policies,
accounting estimates and financial statement disclosures;
• Significant difficulties, if any, encountered during the audit;
• Significant matters, if any, arising from the audit that were discussed with management or were the subject
of correspondence with management;
• Written representations that we are seeking;
• Expected modifications to the audit report; and
• Other matters, if any, significant to the oversight of the financial reporting process or otherwise identified in the
course of the audit that we believe will be relevant to the Audit Committee in the context of fulfilling their
responsibilities.
Significant deficiencies in internal controls identified during the audit. Audit Completion Report
Where relevant, any issues identified with respect to authority to obtain external confirmations or inability to Audit Completion Report
obtain relevant and reliable audit evidence from other procedures.
34
Audit findings regarding non-compliance with laws and regulations where the non-compliance is material and Audit Completion Report and Audit Committee meetings
believed to be intentional (subject to compliance with legislation on tipping off) and enquiry of the Audit
Committee into possible instances of non-compliance with laws and regulations that may have a material effect
on the financial statements and that the Audit Committee may be aware of.
With respect to going concern, events or conditions identified that may cast significant doubt on the entity’s Audit Completion Report
ability to continue as a going concern, including:
• Whether the events or conditions constitute a material uncertainty;
• Whether the use of the going concern assumption is appropriate in the preparation and presentation of the
financial statements; and
• The adequacy of related disclosures in the financial statements.
Reporting on the valuation methods applied to the various items in the consolidated financial statements Audit Completion Report
including any impact of changes of such methods
Explanation of the scope of consolidation and the exclusion criteria applied by the entity to the non-consolidated Audit Strategy Memorandum and/or Audit Completion Report as appropriate
entities, if any, and whether those criteria applied are in accordance with the relevant financial reporting
framework.
Where applicable, identification of any audit work performed by component auditors in relation to the audit of the Audit Strategy Memorandum and/or Audit Completion Report as appropriate
consolidated financial statements other than by Mazars’ member firms
Indication of whether all requested explanations and documents were provided by the entity Audit Completion Report
35
Mark Dalton, Director – Public Services
[email protected]
Mazars
One St Peter’s Square
Manchester
M2 3DE
Mazars is an internationally integrated partnership, specialising in audit, accountancy, advisory, tax

and legal services*. Operating in over 90 countries and territories around the world, we draw on the
expertise of 40,400 professionals – 24,400 in Mazars’ integrated partnership and 16,000 via the
Mazars North America Alliance – to assist clients of all sizes at every stage in their development.
*where permitted under applicable country laws.

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Audit Strategy Memorandum

01 Engagement and responsibilities summary

Appendix – Key communication points

Dear Sirs / Madams

Audit Strategy Memorandum – Year ending 31 March 2021

• sharing information to assist each of us to fulfil our respective responsibilities;

Value for money

Who Role E-mail

Mark Dalton Engagement Lead [email protected]

Mark Outterside Engagement Senior Manager [email protected]

Harry Short Engagement Assistant Manager [email protected]

COVID-19 working arrangements and impact on our auditor’s report

Planning - March 2021 Interim - April 2021

Completion - September 2021 Fieldwork - August - September 2021

Group audit approach

Entity Auditor Scope Planned audit approach

Working with internal audit Service organisations

We plan to obtain assurance by

Specific identified audit risks and planned testing strategy

Description Fraud Error Judgement Planned response

Description Fraud Error Judgement Planned response

Other key areas of management judgement and enhanced risks

Description Fraud Error Judgement Planned response

The framework for Value for Money work

Identified risks of significant weaknesses in arrangements

Fees for work as the Authority’s appointed auditor

Services provided to other entities within the Authority's group

Area of work 2020/21 Proposed Fee 2019/20 Actual Fee

Merseytravel £37,688 £41,220

Materiality (continued) Reporting to the Audit and Governance Committee

Required communication Where addressed

With respect to misstatements: Audit Completion Report

Required communication Where addressed

Significant findings from the audit including: Audit Completion Report

Required communication Where addressed

Mazars is an internationally integrated partnership, specialising in audit, accountancy, advisory, tax

*where permitted under applicable country laws.

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