2015/16 independent auditor's reports (health boards)
Technical guidance note 2016/3(H)
Prepared by the Technical Services Unit
14 March 2016
Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. We help the Auditor General for Scotland and the Accounts Commission check that organisations spending public money use it properly, efficiently and effectively.
Contents
Foreword	4
1	Introduction	5
Introduction	5
Purpose of technical guidance note	5
Auditor's reporting responsibilities	5
Status of model reports	6
Changes from 2014/15	6
Contact points	7
2	Opinion on financial statements	8
Introduction	8
Title and addressees	8
Introductory paragraph	8
'Bannerman' paragraph	9
Respective responsibilities paragraph	9
Scope of the audit paragraph	9
Opinion on financial statements paragraph	10
Basis for modification paragraph	11
Emphasis of matter paragraph	12
Other matter paragraph	13
3	Opinion on regularity of expenditure and income	14
Introduction	14
Unqualified opinion	14
Qualified opinion	14
4	Opinion on other prescribed matters	15
Introduction	15
Opinion on remuneration report	15
Opinion on consistency with performance report	16
5	Matters reported on by exception	18
Introduction	18
Review of governance statement	18
Failure to achieve a prescribed financial objective	18
Other matters reported by exception	18
Suitable conclusion on matters reported by exception	19
6	Signing and dating independent auditor's reports	20
Introduction	20
Signing	20
Dating	20
Location	20
7	Assurance statement on consolidation schedule	22
Introduction	22
Auditors' responsibilities	22
Audit procedures	22
Appendix 1	23
Model independent auditor’s report – health boards (group)	23
Appendix 2	26
Model independent auditor’s report – health boards (non-group)	26
Appendix 3	29
Auditor action checklist	29
Appendix 4	30
Assurance statement on consolidation templates	30
Appendix 5	31
Auditor action checklist (Consolidation templates)	31

Foreword
Technical guidance notes are prepared by Audit Scotland's Technical Services Unit (TSU) to provide external auditors appointed by the Accounts Commission and Auditor General for Scotland with guidance on particular subjects or themes relevant to their audit appointment.  They cover auditors' responsibilities to audit the financial statements, and review returns for whole of government accounts and local authority grant claims.  
Technical guidance notes are available to external auditors from Audit Scotland's Technical reference library, and are also published on the Audit Scotland website so that audited bodies and other stakeholders can access them.
This particular type of technical guidance note is approved by the Assistant Auditor General and provides guidance on reporting the audit of the financial statements, including model independent auditor's reports.  
While auditors act independently, and are responsible for their own conclusions and opinions, the TSU has a role in ensuring that those conclusions and opinions are reached on the basis of informed judgement.  Consistency in similar circumstances is important and the Code of audit practice therefore states that auditors should follow TSU guidance.  Auditors should advise the TSU promptly if they intend not to follow any guidance provided in this technical guidance note.

Audit Scotland makes no representation as to the completeness or accuracy of the contents of technical guidance notes or that legal or technical guidance is correct.  Points of law, in particular, can ultimately be decided only by the Courts.  Audit Scotland accepts no responsibility for any loss or damage caused as a result of any person relying upon anything contained in this note. 

1	Introduction
Introduction 
1.	External auditors are required under the Public Finance and Accountability (Scotland) Act 2000 (the 2000 Act) to provide opinions on health boards' financial statements and the regularity of expenditure and income, and report on other related responsibilities, in an independent auditor's report.  
2.	ISA (UK&I) 700 The independent auditor’s report on financial statements (ISA 700) establishes standards on the form and content of the independent auditor’s report.  The Financial Reporting Council's (FRC) Bulletin 2010/2 (Revised) Compendium of illustrative auditor’s reports on United Kingdom private sector financial statements etc provides examples to illustrate the requirements of ISA 700 for the private sector.
3.	The Code of audit practice states that model forms of independent auditor’s reports will be provided to public sector auditors by Audit Scotland.  
Purpose of technical guidance note
4.	The main purpose of this technical guidance note from the TSU is to provide those auditors with 'sign off' responsibilities with the model independent auditor's reports which should be used for the 2015/16 annual report and accounts of health boards, along with guidance on their use.
5.	Separate models have been provided to be used depending on whether a board consolidates its endowment funds.  Appendix 1 should be used when the endowment has been consolidated, and Appendix 2 when it has not. 
6.	The wording of the model independent auditor's reports at Appendices 1 and 2 is based on the illustrative examples issued by the FRC tailored to reflect health sector legislation and augmented by the reporting requirements of Audit Scotland.
7.	Auditors should complete the checklist at Appendix 3 which provides a list of the key auditor actions set out in this technical guidance note.
8.	This technical guidance note also provides an assurance statement for the consolidation schedules at Appendix 4.
Auditor's reporting responsibilities
9.	When reporting on the audit of the financial statements, auditors of health boards are required by legislation and international standards on auditing in the UK (ISAs) to 
•	express an opinion on whether the board's financial statements and, where applicable, its group give a true and fair view and are properly prepared in accordance with the accounts direction from the Scottish Ministers (see section 2)
•	express an opinion of the regularity of expenditure and income (see section 3). 
10.	Auditors are required by ISA 720 (UK&I) Section A The auditor’s responsibilities relating to other information in documents containing audited financial statements (ISA 720A) to read the information that accompanies the financial statements and report where they identify inconsistencies or apparently incorrect information.
11.	Auditors have other reporting responsibilities prescribed by Audit Scotland which are to 
•	express an opinion on whether a specified part of the remuneration and staff report has been properly prepared (see section 4)
•	express an opinion on whether the performance report is consistent with the financial statements (see section 4)
•	report conclusions on other matters by exception, including non-compliance with guidance on the preparation of the governance statement (see section 5).
12.	Audit Scotland also requires auditors to provide an assurance statement on consolidation schedules (see section 7).
13.	An audit report is also required if a board includes summary financial information in a separate 'glossy' annual report'.  As this is considered unlikely to be the case in 2015/16, a model report has not been provided.  However, auditors should contact the TSU if a report is required.
Status of model reports
14.	In the interests of consistency, auditors are required to use the model wording in the appendices to this technical guidance note as a condition of their audit appointment.  The only exception is the text indicated in [square brackets] where amendments will require to be made by auditors to tailor the terminology to reflect local circumstances.  In Appendices 1 and 2, this exception applies to the following which auditors should amend to match precisely the titles used by the health board
•	The names of the financial statements in the introductory paragraph.
•	The title of the document which contains the audited financial statements referred to in the scope paragraph, e.g. annual report and accounts.
•	The name of the statement (or statements) disclosing the information required by pages 8 to 10 of the NHS board accounts manual, e.g. performance report.
15.	It should be noted that the requirement to follow the model wording in the appendices applies to the 'Bannerman' paragraph.  
16.	Where the appointed auditor is a member of Audit Scotland staff, the reports should be presented in the first person singular.  Firms should present the report in the first person plural.
17.	Any proposed modifications to any audit opinion or conclusion in the model reports, or the inclusion of 'emphasis of matter' or 'other matter' paragraphs, should be discussed with the TSU in advance of finalising the report.
Changes from 2014/15
18.	The only changes to the models at Appendices 1 and 2 are to reflect changed requirements in chapter 5 of the 2015/16 Government financial reporting manual (the FReM) and accounts manual in respect of the annual report.  The changes are explained in module 5 (section 2) of technical guidance note 2016/2(H) but in summary the annual report is now split into
•	a performance report (which has replaced the management commentary)
•	an accountability report, which includes the governance statement and the renamed remuneration and staff report.  
19.	Other changes include
•	additional clarification in some areas as a result of the findings from a review of the 2014/15 reports
•	guidance added at paragraph 26 on the treatment of the summary of resource outturn
•	guidance on the positioning of the independent auditor's report has been added at paragraph 93
•	the model and guidance for a report on summary financial information has been dropped.
Contact points 
20.	The contact points for this technical guidance note are
•	Paul O’Brien (pobrien@audit-scotland.gov.uk or 0131 625 1795).
•	Neil Cameron (ncameron@audit-scotland.gov.uk or 0131 625 1797).
•	Helen Cobb (hcobb@audit-scotland.gov.uk or 0131 625 1901).

2	Opinion on financial statements
Purpose of section
21.	This section provides guidance on the paragraphs in the independent auditor's report that relate to expressing an opinion on the financial statements.
Overview
22.	Auditors are required to express an opinion on whether a health board's financial statements, and those of its group where applicable, give a true and fair view and are properly prepared in accordance with the accounts direction issued under section 86 of the National Health Services (Scotland) Act 1978.
23.	The Code of audit practice requires auditors to audit the financial statements in accordance with ISAs.  ISA 700 requires the independent auditor's report to have a title, be properly addressed, and contain the following paragraphs in respect of the audit of the financial statements
•	introductory 
•	respective responsibilities
•	scope of the audit
•	opinion on the financial statements.
Title and addressees
24.	The term 'independent auditor's report' should be used in the title to clearly distinguish it from other required reports, such as the annual audit report.
25.	The independent auditor's report should be addressed to the members of the health board, the Auditor General for Scotland and the Scottish Parliament.
Introductory paragraph
Financial statements
26.	Auditors are required to identify in the introductory paragraph the financial statements that they have audited.  The financial statements listed in Appendices 1 and 2 are based on the requirements of, and titles used by, the 2015/16 accounts manual.
27.	The summary of resource outturn is part of the statement of comprehensive net expenditure.  It is not a separate statement and auditors should discourage boards from describing it as such.
28.	The statements listed by auditors should precisely match the statements and titles actually used by the health board.  In 2014/15, there were a number of instances where the titles used by auditors did not precisely match those used by the board which makes it difficult for a user of the accounts to clearly understand the statements that have been audited.
Reporting framework
29.	The auditor’s report is also required to specify the financial reporting framework that has been applied in the preparation of the financial statements.  In the health sector, the framework is international financial reporting standards as adopted by the European Union, and interpreted or adapted by the FReM.
'Bannerman' paragraph
30.	The model wording contains a paragraph immediately after the introductory paragraph to recognise the judgement in the case of Royal Bank of Scotland v Bannerman Johnstone Maclay, which highlighted the potential exposure of auditors to third parties who assert that they rely on audit reports where auditors have not expressly disclaimed responsibility to those third parties.
31.	The model wording for the 'Bannerman' paragraph explains that the report is made solely to the parties to whom it is addressed and that auditors do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties.  The dispensation which allowed auditors to make minor amendments to this wording in previous years no longer applies.
Respective responsibilities paragraph
32.	ISA 700 requires the report to state that those charged with governance are responsible for the preparation of the financial statements and that the responsibility of the auditor is to audit and express an opinion on the financial statements in accordance with applicable legal requirements and ISAs. The report should also state that the ISAs require auditors to comply with the Auditing Practices Board’s Ethical standards for auditors
33.	The paragraph should also refer to the respective responsibilities for the regularity of expenditure and income.
Scope of the audit paragraph
34.	ISA 700 requires the independent auditor's report to explain the scope of the audit of the financial statements.  It gives the option of either cross referring to a statement on the FRC's website or to a statement included elsewhere within the annual report and accounts, or including a description of the scope of an audit set out in the ISA.
35.	The model reports in Appendices 1 and 2 remove the first two options and specify the wording of the description that should be included.  The model wording explains that an audit of the financial statements in the health sector includes obtaining evidence on the regularity of expenditure and income.
36.	The wording also explains that auditors read all the financial and non-financial information in the document containing the financial statements.  Auditors should amend the model wording in this paragraph to match precisely the title of the document used by the board (e.g. annual report and accounts).  Auditors should read the other information (i.e. the statements, reports and narrative in the document other than the financial statements and notes) to identify 
•	material inconsistencies with the audited financial statements 
•	any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by auditors in the course of performing the audit.
37.	This reflects auditors' responsibilities in ISA 720A which states that an inconsistency is anything in the other information that contradicts information contained in the audited financial statements.  If auditors identify that revision of the other information is necessary, and the board refuses to make the revision, auditors should report as follows
•	Where there is an inconsistency in the performance report, auditors should report the matter as a qualification to the opinion on the performance report.
•	Where the inconsistency is in information outwith the performance report, auditors should report it in an 'other matter' paragraph.
•	Where the information is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by auditors in the course of performing the audit, or is otherwise misleading auditors should report this also in an 'other matter' paragraph.
Opinion on financial statements paragraph 
38.	ISA 700 requires the independent auditor’s report to contain a clear written expression of opinion on the financial statements, based on the auditor evaluating whether
•	sufficient appropriate audit evidence as to whether the financial statements as a whole are free from material misstatement has been obtained
•	uncorrected misstatements are material
•	the financial statements, including the related notes, give a true and fair view.
39.	Guidance on the risks of material misstatement in the financial statements is provided by the TSU in Technical guidance note 2016/2(H).  The guidance in the modules on the financial statement areas highlights what the TSU considers to be the main risks of misstatement in each area. It also sets out actions for each risk that auditors should undertake to assess whether the health board has followed the required accounting treatment
40.	Auditors are required to clearly state their opinion on the financial statements.  An unqualified opinion should be expressed only when auditors conclude that the financial statements 
•	give a true and fair view of the state of affairs of the board (and, where relevant, the group) for the year ended 31 March 2016, and the net operating cost for 2015/16
•	have been properly prepared in accordance with the 2015/16 FReM
•	have been prepared in accordance with the requirements of the direction from the Scottish Ministers that applies to the preparation of the financial statements.
41.	Where auditors conclude that a modification to their opinion is required, they should add a 'basis for modification' paragraph to their report in accordance with ISA 705 (UK&I) Modifications to the opinion in the independent auditor's report (ISA 705).
Basis for modification paragraph
42.	ISA 705 deals with modifications to the auditor’s opinion on the financial statements.  Auditors should modify their opinion when they
•	conclude that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or
•	are unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.
43.	ISA 705 establishes three types of modified opinions, i.e. a qualified opinion, an adverse opinion, and a disclaimer of opinion.  When auditors qualify their opinion on the financial statements, they should  
•	include a 'basis for modification' paragraph in the auditor’s report that provides a description of the matter giving rise to the modification and
•	place this paragraph immediately before the opinion paragraph 
•	use the heading 'Basis for qualified opinion on the financial statements' (or 'adverse opinion' or 'disclaimer of opinion', as appropriate).
•	use the heading 'Qualified opinion on the financial statements' (or 'Adverse opinion' or  'Disclaimer of opinion', as appropriate) for the opinion paragraph.
Qualified opinion
44.	Auditors should express a qualified opinion when
•	having obtained sufficient appropriate audit evidence, they conclude that misstatements, are material, but not pervasive, to the financial statements (pervasive effects on the financial statements are those that are not confined to specific items of the financial statements or those that are fundamental to users’ understanding); or
•	they are unable to obtain sufficient appropriate audit evidence on which to base the opinion, but conclude that the possible effects on the financial statements of undetected misstatements could be material but not pervasive.  
45.	Material misstatements may relate to 
•	specific amounts in the financial statements.  Auditors should include in the 'basis for qualified opinion' paragraph a description and quantification of the financial effects of the misstatement (unless impracticable)
•	narrative disclosures.  Auditors should include in the 'basis for qualified opinion' paragraph an explanation of how the disclosures are misstated
•	the non-disclosure of information required to be disclosed.  Auditors should 
•	describe in the 'basis for qualified opinion' paragraph the nature of the omitted information; and
•	include the omitted disclosures (unless impracticable).
46.	When auditors express a qualified opinion due to a material misstatement in the financial statements, they should state in the 'opinion on the financial statements' paragraph that, except for the effects of the matter described in the 'basis for qualified opinion' paragraph, the financial statements give a true and fair view.
47.	Where the qualified opinion results from an inability to obtain sufficient appropriate audit evidence, auditors should 
•	include in the 'basis for qualified opinion' paragraph the reasons for that inability
•	state in the 'opinion on the financial statements' paragraph that, except for the possible effects of the matter described in the basis for qualified opinion paragraph, the financial statements give a true and fair view.
Adverse opinion
48.	Auditors should express an adverse opinion when, having obtained sufficient appropriate audit evidence, they conclude that misstatements are both material and pervasive to the financial statements.  Auditors should state in the 'opinion on the financial statements' paragraph that, in their opinion, because of the significance of the matter described in the 'basis for adverse opinion' paragraph, the financial statements do not give a true and fair view.
Disclaimer of opinion
49.	Auditors should disclaim an opinion when they are unable to obtain sufficient appropriate audit evidence on which to base the opinion, and they conclude that the possible effects on the financial statements of undetected misstatements could be both material and pervasive.  Auditors should
•	amend the 'introductory' paragraph to state that they were engaged to audit the financial statements
•	state in the 'opinion on the financial statements' paragraph that because of the significance of the matter described in the 'basis for disclaimer of opinion' paragraph, they have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion, and accordingly they do not express an opinion on the financial statements.
Emphasis of matter paragraph
50.	ISA 706 Emphasis of matter paragraphs and other matter paragraphs in the independent auditor's report (ISA 706) deals with additional communication in the independent auditor’s report when the auditor considers it necessary to draw users’ attention to matters that are fundamental to users’ understanding of the financial statements (i.e. an 'emphasis of matter' paragraph).
51.	An 'emphasis of matter' paragraph refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.  Auditors should
•	include it immediately after the 'opinion on financial statements' paragraph 
•	use the heading 'Emphasis of matter', or other appropriate heading
•	include in the paragraph a clear reference to the matter being emphasised and to where relevant disclosures that fully describe the matter can be found in the financial statements
•	indicate that the auditor’s opinion on the financial statements is not modified in respect of the matter emphasised.
Other matter paragraph
52.	ISA 706 also deals with additional communication in the independent auditor’s report when the auditor considers it necessary to draw users’ attention to matters that are relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report (i.e. an 'other matter' paragraph).
53.	An 'other matter' paragraph refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.  Auditors should 
•	use the heading 'Other matter', or other appropriate heading
•	include this paragraph immediately after the 'opinion on financial statements' paragraph and any 'emphasis of matter' paragraph.
54.	Auditors should use an 'other matter' paragraph to report any apparently incorrect information.  A material inconsistency between the financial statement and other information (other than information contained in the performance report) should also be reported as an 'other matter' paragraph.
55.	'Other matter' paragraphs are not the appropriate vehicle to deal with the other reporting responsibilities set out in the remainder of this technical guidance note.  However, ISA 706 states that an 'other matter' paragraph may be used to draw users' attention to a matter relevant to these other reporting responsibilities.  Where this is the case, the 'other matter' paragraph should be located beside the reporting responsibility to which it relates. 

3	Opinion on regularity of expenditure and income
Purpose of section
56.	This section provides guidance on the paragraphs in the independent auditor's report that relate to expressing an opinion on the regularity of expenditure and income.
Overview
57.	Auditors of health boards are required by the Public Finance and Accountability (Scotland) Act 2000 to express an opinion on the regularity of expenditure and receipts shown in the financial statements. Although, the Act uses the term 'receipts', normal practice is to refer to 'income'.  
58.	Auditors are therefore required to report whether, in their opinion, in all material respects, expenditure was incurred and income applied in accordance with applicable enactments and guidance issued by the Scottish Ministers. 
59.	The responsibility to express an opinion on regularity is discharged through the audit of the financial statements.  Guidance on the audit of regularity is provided by the TSU in module 4 of technical guidance note 2016/2(H).  
Unqualified opinion
60.	Where auditors do not qualify their opinion on regularity, the wording of the relevant paragraph in Appendices 1 and 2 should be used unchanged.
Qualified opinion
61.	Where auditors express a qualified opinion on regularity, they should
•	include a 'Basis for qualified opinion on regularity' paragraph and provide a concise description of the matter giving rise to the qualification
•	amend the opinion heading to 'Qualified opinion on regularity', and include the phrase 'except for the effects of the matter described in the basis for qualified opinion on regularity paragraph' after 'In my opinion'.

4	Opinion on other prescribed matters
Purpose of section
62.	This section provides guidance on the paragraphs in the independent auditor's report that relate to expressing an opinion on the specified part of the remuneration and staff report and the performance report.
Overview
63.	ISA 700 requires auditors to address other reporting responsibilities in separate sections of the independent auditor’s report following the opinion on the financial statements and the opinion on regularity.
64.	Auditors are required to express opinions on the specified part of the remuneration and staff report and the performance report in a section under the heading 'Opinion on other prescribed matters' using the wording in Appendices 1 and 2.  Where one of the opinions is qualified, each opinion should be dealt with separately under its own heading as explained at paragraphs 69 and 77.
Opinion on remuneration report
Introduction
65.	The accounts direction requires boards to comply with the requirements of the FReM.  The 2015/16 FReM and the accounts manual require health boards to publish a remuneration and staff report in the annual report and accounts showing the remuneration of directors.
Auditors' responsibilities
66.	In line with Companies Act 2006 requirements, auditors are required by the Code of audit practice to audit part of the remuneration and staff report and express a separate opinion within their independent auditor's report on whether it has been properly prepared.
67.	Module 5 (section 4) of technical guidance note 2016/2(H) provides guidance for auditors on the part of the remuneration and staff report that requires to be audited.  The remainder of the disclosures form part of the other information read by auditors under ISA 720A.
Unqualified opinion
68.	Where auditors do not qualify their opinion on the remuneration and staff report, the wording of the relevant paragraph in Appendices 1 and 2 should be used unchanged.
Qualified opinion
69.	Where auditors express a qualified opinion on the remuneration and staff report, they should
•	include the opinion in its own section using the heading 'Qualified opinion on the remuneration and staff report'
•	provide a concise description of the matter giving rise to the qualification
•	include the opinion on the performance report in its own section using the heading 'Opinion on other prescribed matter'.
Opinion on consistency with performance report
Introduction
70.	The FReM and accounts manual set out the requirements for a performance report in the annual report and accounts.
Auditor's responsibilities
71.	In line with the Companies Act 2006, Audit Scotland requires auditors to express an opinion in the independent auditor's report as to whether the information given in the performance report is consistent with the financial statements.  Module 5 (section 3) of technical guidance note 2016/2(H) provides guidance for auditors.  
72.	ISA 720 (UK&I) Section B The auditor's statutory reporting responsibility in relation to directors' reports applies to this reporting responsibility. It explains that inconsistencies include
•	differences between amounts or narrative appearing in the financial statements and the performance report 
•	differences between the bases of preparation of related items where the figures are not directly comparable and the different bases are not disclosed
•	contradictions between figures in the financial statements and the narrative explanation of those figures in the performance report.
73.	The opinion should cover any required information that is included by way of a cross-reference to information presented separately from the performance report.  Boards may use different naming conventions and auditors should use terminology which precisely matches that used by the board (e.g. operating and financial review, or strategic report and directors' report).
74.	Auditors are not required to verify, or report on, the completeness of the information in the performance report.  If, however, auditors become aware that required information has been omitted, auditors should communicate the matter to the Accountable Officer.  This includes situations where the required information is presented separately from the performance report without appropriate cross-references.
75.	Auditors should also read the performance report under ISA 720A.  
Unqualified opinion
76.	Where auditors do not qualify their opinion on the performance report, the wording of the relevant paragraph in Appendices 1 and 2 should be used unchanged.
Qualified opinion
77.	If auditors are of the opinion that the information in the performance report is materially inconsistent with the financial statements, and have been unable to resolve the inconsistency, auditors should express a qualified opinion in respect of the performance report. Auditors should
•	include the opinion in its own section using the heading 'Qualified opinion on the performance report'
•	provide a concise description of the matter giving rise to the qualification, finishing with the sentence 'Except for this matter, in our opinion the information given in the performance report is consistent with the financial statements'
•	include the opinion on the remuneration report in its own section using the heading 'Opinion on other prescribed matter'.

5	Matters reported on by exception
Purpose of section
78.	This section provides guidance on the paragraphs in the independent auditor's report that relate to reporting on the annual governance statement and other matters reported on by exception. 
Overview
79.	Where auditors are required to report on certain matters by exception, ISA 700 requires auditors to describe their responsibilities under the heading 'Matters on which we are required to report by exception', and incorporate a suitable conclusion in respect of such matters.
80.	Audit Scotland requires auditors of health boards to report by exception (i.e. a positive statement is not required) on the matters explained in the following paragraphs.
Review of governance statement 
81.	Health boards are required to publish a governance statement with their financial statements.  Auditors are required by the Code of audit practice to review the governance statement and report by exception any non-compliance with relevant sectoral guidance.  
82.	For health boards, the guidance is set out in the governance statements section of the Scottish public finance manual, and supplementary guidance for health boards included in the accounts manual.  Module 5 (section 5) of technical guidance note 2016/2(H)) provides guidance for auditors.
83.	Audit Scotland does not require appointed auditors in the public sector to express an opinion on whether the information given in the governance statement is consistent with the financial statements.  Any material inconsistencies should be reported as an 'other matter' paragraph in accordance with ISA 720A, as explained at paragraphs 29 and 30.
84.	Health boards are not required to report compliance with the UK Corporate governance code.  If a board makes a reference in the governance statement to that code, auditors should contact the TSU as this would trigger additional reporting requirements under ISA 720A.
Failure to achieve a prescribed financial objective
85.	Auditors are required by Audit Scotland to report any failure by a board to achieve a prescribed financial objective.  This includes any excess of outturn over the revenue resource limit and capital resource limit. 
Other matters reported by exception
86.	The Companies Act 2006 requires the auditors of companies to report if, in their opinion 
•	adequate accounting records have not been kept
•	the financial statements and the part of the remuneration report to be audited are not in agreement with the accounting records
•	they have not received all the information and explanations required for the audit.
87.	Audit Scotland requires appointed auditors in the public sector to also report on these matters.
Suitable conclusion on matters reported by exception
88.	Where auditors have nothing to report, they should use the conclusion wording in Appendices 1 and 2 which is 'I/we have nothing to report in respect of these matters'.
89.	Where there is a matter to report, auditors should
•	modify the conclusion to 'I/We have the following to report in respect of these matters'  
•	provide a concise description of the matter being reported
•	finish with the sentence 'I/We have nothing to report in respect of the other matters'.

6	Signing and dating independent auditor's reports
Purpose of section
90.	This section provides guidance on signing and dating the independent auditor's reports, as well its recommended positioning in the document. 
Overview
91.	ISA 700 requires independent auditor's reports to state the name of the auditor and be signed and dated.  
Signing
92.	For audits where the auditor is a member of Audit Scotland staff, the individual should sign the report in their own name.
93.	Where the auditor is a firm, for consistency with the Companies Act 2006, the report should be signed in their own name by the partner or other individual who is responsible for issuing the report for and on behalf of the firm.
94.	Auditors should not sign themselves as 'senior statutory auditor'.
Dating
95.	The date of the auditor’s report should be the date on which the auditor actually signs the report.  Auditors should give the correct day, month and year of their signature, e.g. 30 June 2016.  Auditors should not date (and hence sign) the report earlier than the date on which the financial statements have been approved by those charged with governance (i.e. the authorised for issue date) and the auditor has considered all necessary available evidence.
96.	If the date on which the auditor signs the report is later than the authorised for issue date, auditors should 
•	obtain assurance that those charged with governance would have approved the financial statements on that later date (e.g. by obtaining confirmation from the Accountable Officer)
•	ensure that audit procedures for reviewing subsequent events cover the period up to that date.
Address
97.	ISA 700 requires the report to name the location of the office where the auditor is based.  Auditors should give the full postal address of their office.
Positioning of the independent auditor's report
98.	Paragraph 5.3.28 of the FReM states that the new accountability report should include (in the parliamentary accountability and audit report section) the certificate and report of the Comptroller and Auditor General.  Although this is the equivalent of the independent auditor's report used in Scotland, the TSU does not consider it appropriate for the auditor's report to be included within the accountability report.  This is principally because the accountability report is signed off by the Accountable Officer.
99.	Auditors should encourage bodies to locate the independent auditor's report immediately after the accountability report, so it is clear to users of the accounts that it is not covered by the Accountable Officer's signature.

7	Assurance statement on consolidation schedule
Purpose of section
100.	This section provides guidance on audit procedures to be carried out on the consolidation templates and the completion of the assurance statement.
Responsibilities
101.	Health boards are required to prepare consolidation templates to facilitate the preparation of the health information included in the Scottish Government’s consolidated resource accounts.
102.	Auditors are required to complete an assurance statement stating whether the completed templates are consistent with the audited financial statements.  Model wording for the assurance statement is provided at Appendix 4.  
Audit procedures
103.	Auditors should review the completed templates and conclude whether they are consistent with the financial statements by
•	assessing the board's processes and controls for the preparation of the templates
•	agreeing the entries on the templates to the corresponding item in the financial statements
•	investigating error messages, and ensuring that negative balances are correctly reported
•	checking that the templates include all relevant pages i.e. primary statements, notes, SFRs and payment policy and staff absence sheets
•	agreeing inter-board trading figures to supporting documentation.
104.	Auditors should then 
•	conclude as to whether the templates are consistent with the audited financial statements.  When auditors identify an inconsistency, they should bring it to the board's attention so that it can be eliminated 
•	complete the assurance statement provided at Appendix 4.  If an identified inconsistency is not eliminated, auditors should include a description of the inconsistency in their assurance statement
•	submit by 30 June 2016 the templates and accompanying completed assurance statement by e-mail to alasdair.black@scotland.gsi.gov.uk.
105.	A checklist is included at Appendix 5 of this note which may help auditors in carrying out their responsibilities in relation to the consolidation templates. 

Appendix 1
Model independent auditor’s report – health boards (group)
Independent auditor’s report to the members of [insert name of health board), the Auditor General for Scotland and the Scottish Parliament
[I/We] have audited the financial statements of [insert name of board] and its group for the year ended 31 March 2016 under the National Health Service (Scotland) Act 1978.  The financial statements comprise [specify precisely the titles of the primary statements used by the board such as the Consolidated Balance Sheet, the Consolidated Statement of Comprehensive Net Expenditure, the Statement of Consolidated Cash Flows, the Statement of Consolidated Changes in Taxpayers’ Equity] and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and as interpreted and adapted by the 2015/16 Government Financial Reporting Manual (the 2015/16 FReM).
This report is made solely to the parties to whom it is addressed in accordance with the Public Finance and Accountability (Scotland) Act 2000 and for no other purpose.  In accordance with paragraph 125 of the Code of Audit Practice approved by the Auditor General for Scotland, [I/we] do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties.
Respective responsibilities of Accountable Officer and auditor
As explained more fully in the Statement of the Chief Executive’s Responsibilities as the Accountable Officer of the Health Board, the Accountable Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and is also responsible for ensuring the regularity of expenditure and income.  [My/Our] responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) as required by the Code of Audit Practice approved by the Auditor General for Scotland. Those standards require [me/us] to comply with the Auditing Practices Board’s Ethical Standards for Auditors.  [I am/We are] also responsible for giving an opinion on the regularity of expenditure and income in accordance with the Public Finance and Accountability (Scotland) Act 2000.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the circumstances of the board and its group and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Accountable Officer; and the overall presentation of the financial statements.  It also involves obtaining evidence about the regularity of expenditure and income.  In addition, [I/we] read all the financial and non-financial information in the [insert title of document containing the financial statements, e.g. annual report and accounts] to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by [me/us] in the course of performing the audit. If [I/we] become aware of any apparent material misstatements, irregularities, or inconsistencies [I/we] consider the implications for [my/our] report.
Opinion on financial statements
In [my/our] opinion the financial statements:
•	give a true and fair view in accordance with the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers of the state of affairs of the board and its group as at 31 March 2016 and of their net operating cost for the year then ended;
•	have been properly prepared in accordance with IFRSs as adopted by the European Union, as interpreted and adapted by the 2015/16 FReM; and
•	have been prepared in accordance with the requirements of the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers.
Opinion on regularity
In [my/our] opinion in all material respects the expenditure and income in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers.
Opinion on other prescribed matters
In [my/our] opinion:
•	the part of the Remuneration and Staff Report to be audited has been properly prepared in accordance with the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers; and
•	the information given in the [insert name of statement(s) containing information required by pages 8 to 10 of accounts manual, e.g. performance report] for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which [I am/we are] required to report by exception
[I am/We are] required to report to you if, in [my/our] opinion:
•	adequate accounting records have not been kept; or
•	the financial statements and the part of the Remuneration and Staff Report to be audited are not in agreement with the accounting records; or
•	[I/we] have not received all the information and explanations [I/we] require for [my/our] audit; or
•	the Governance Statement does not comply with guidance from the Scottish Ministers; or
•	there has been a failure to achieve a prescribed financial objective.
[I/We] have nothing to report in respect of these matters.
[Signature]
[Name of individual auditor], (for and on behalf of [name of firm] - firms only)
[Full postal address]
[Full date]

Appendix 2
Model independent auditor’s report – health boards (non-group)
Independent auditor’s report to the members of [insert name of health board), the Auditor General for Scotland and the Scottish Parliament
[I/We] have audited the financial statements of [insert name of board] for the year ended 31 March 2016 under the National Health Service (Scotland) Act 1978.  The financial statements comprise [specify precisely the titles of the primary statements such as the Balance Sheet, the Statement of Comprehensive Net Expenditure, the Statement of Cash Flow, the Statement of Changes in Taxpayers’ Equity] and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and as interpreted and adapted by the 2015/16 Government Financial Reporting Manual (the 2015/16 FReM).
This report is made solely to the parties to whom it is addressed in accordance with the Public Finance and Accountability (Scotland) Act 2000 and for no other purpose.  In accordance with paragraph 125 of the Code of Audit Practice approved by the Auditor General for Scotland, [I/we] do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties.
Respective responsibilities of Accountable Officer and auditor
As explained more fully in the Statement of the Chief Executive’s Responsibilities as the Accountable Officer of the Health Board, the Accountable Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and is also responsible for ensuring the regularity of expenditure and income.  [My/our] responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) as required by the Code of Audit Practice approved by the Auditor General for Scotland. Those standards require [me/us] to comply with the Auditing Practices Board’s Ethical Standards for Auditors.  [I am/We are] also responsible for giving an opinion on the regularity of expenditure and income in accordance with the Public Finance and Accountability (Scotland) Act 2000.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the board’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Accountable Officer; and the overall presentation of the financial statements.  It also involves obtaining evidence about the regularity of expenditure and income.  In addition, [I/we] read all the financial and non-financial information in the [insert the precise title of document containing the financial statements, e.g. annual report and accounts] to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by [me/us] in the course of performing the audit. If [I/we] become aware of any apparent material misstatements, irregularities, or inconsistencies [I/we] consider the implications for [my/our] report.
Opinion on financial statements
In [my/our] opinion the financial statements:
•	give a true and fair view in accordance with the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers of the state of the board’s affairs as at 31 March 2016 and of its net operating cost for the year then ended;
•	have been properly prepared in accordance with IFRSs as adopted by the European Union, as interpreted and adapted by the 2015/16 FReM; and
•	have been prepared in accordance with the requirements of the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers.
Opinion on regularity
In [my/our] opinion in all material respects the expenditure and income in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers.
Opinion on other prescribed matters
In [my/our] opinion:
•	the part of the Remuneration and Staff Report to be audited has been properly prepared in accordance with the National Health Service (Scotland) Act 1978 and directions made thereunder by the Scottish Ministers; and
•	the information given in the [insert name of statement(s) containing information required by pages 8 to 10 of accounts manual, e.g. performance report] for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which [I am/we are] required to report by exception
[I am/We are] required to report to you if, in [my/our] opinion:
•	adequate accounting records have not been kept; or
•	the financial statements and the part of the Remuneration and Staff Report to be audited are not in agreement with the accounting records; or
•	[I/we] have not received all the information and explanations [I/we] require for [my/our] audit; or
•	the Governance Statement does not comply with guidance from the Scottish Ministers; or
•	there has been a failure to achieve a prescribed financial objective.
[I/We] have nothing to report in respect of these matters.
[Signature]
[Name of individual auditor], (for and on behalf of [name of firm] - firms only)
[Full postal address]
[Full date]

Appendix 3
Auditor action checklist
	Yes/No/N/A	Initials/date	W/P ref	
1	Have you used the correct model for the board's circumstances (i.e. group or single)?
				
2	Have you presented the reports in the correct person (i.e. singular for Audit Scotland staff, plural for firms)? 
				
3	Does the list of financial statements in the introductory paragraph precisely match the actual statements and names used by the board? 
				
4	Does the title of the document included in the scope paragraph precisely match the title of the document containing the audited financial statements? 
				
5	Does the name of the statement(s) used in the opinion on the performance report precisely match the actual statement(s) and titles used by the board?
				
6	Have you discussed any proposed modifications to audit opinions or conclusions, or ISA 706 paragraphs, with the TSU? 
				
7	Have you 
•	signed and dated the report on or after the authorised for issue date?
•	signed the report on behalf of the firm (firms only)?
•	given the full date and postal address?				
Appendix 4
Assurance statement on consolidation templates
Report by the auditors of [insert name of health board] on the consolidation templates for the financial year 2015/16
[I/We] have reviewed the information contained in the consolidation templates of [insert name of health board] for the financial year 2015/16.
Respective responsibilities of the Board and auditor
The Board is responsible for preparing the consolidation templates in accordance with guidance issued by the Scottish Government Health and Social Care Directorates.
[My/Our] responsibility is to report to you [my/our] conclusion on the consistency of the consolidation templates with the audited financial statements.  [I/We] carried out [my/our] review in accordance with the approach set out in Audit Scotland’s technical guidance note 2016/3(H).
[My/Our] report on the board's audited financial statements describes the basis of [my/our] opinion on those financial statements.
Conclusion
[I/We] have concluded that the consolidation templates are consistent with the audited financial statements of the board for the year ended 31 March 2016.

[Electronic signature of auditor}
[Name of auditor]
[Full postal address]
[Full date]

Appendix 5
Auditor action checklist (Consolidation templates)
	Yes/No/N/A	Initials/date	W/P ref	
1	Do the board's processes and controls for the preparation of the templates appear adequate?
				
2	Are cells identified as negative in the workbook spreadsheet reported as negative balances in the financial statements? 
				
3.	Are all of the relevant pages included i.e. primary statements, notes, SFRs, payment policy and resource and cash outturn sheets?
				
4.	Do the entries on the templates (including SFRs) agree with those reported in the financial statements?
				
5.	Have any error messages been investigated?
				
6.	Have the inter-board trading figures been agreed to supporting documentation? 
				
7.	Has an electronic version of the templates and a completed assurance statement been submitted to the SGHSCD by 30 June?