Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below:
We obtained a general understanding of the entity’s legal and regulatory framework through enquiry of management concerning their understanding of relevant laws and regulations, the entity’s policies and procedures regarding compliance and how they identify, evaluate and account for any claims that may arise.
We understand that the entity complies with the framework through:
- The director’s close involvement in the day-to-day running of the business, meaning that any litigation or claims would come to their attention directly;
- Outsourcing accounting and tax compliance to qualified external experts.
In the context of the audit, we considered those laws and regulations which determine the form and content of the financial statements, which are central to the entity's ability to conduct its business, and where there is a risk that failure to comply could result in material penalties. We identified the following laws and
regulations as being of significance in the context of the entity:
- The Companies Act 2006 and FRS 102 in respect of the preparation and presentation of the financial statements.
- Health and Safety legislation
We performed the following specific procedures to gain evidence about compliance with the significant laws and regulations identified above:
- Review of the procedures management has implemented over compliance with relevant regulations.
- Obtaining written management representations that they disclosed to us all known instances of noncompliance or suspected non-compliance with laws and regulations and accounted for and disclosed all known actual or possible litigation and claims in the financial statements;
- Inquired about the nature of any inquiries or correspondence with the Health & Safety Executive;
- Review of legal expenditure accounts to understand the nature of expenditure incurred.
The senior statutory auditor led a discussion with all members of the engagement team regarding the susceptibility of the entity’s financial statements to material misstatement, including how fraud might occur. The key areas identified as part of the discussion were:
- Manipulation of the financial statements through posting of manual journals.
We have rebutted a fraud risk over revenue recognition due to the straight-forward nature of recognising revenue based on the legal completion of house sales.
Audit procedures performed by the engagement team on the areas where fraud might occur included:
- Testing a sample of journal entries, selected based on specific risk assessments applied on the company’s processes and controls surrounding manual journals.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.