My 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 a Report of the Auditor that includes my 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.
The extent to which my procedures are capable of detecting irregularities, including fraud is detailed below:
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 considered the nature of the limited liability partnership’s industry and its control environment, and reviewed the limited liability partnership’s documentation of their policies and procedures relating to fraud and compliance with laws and regulations. We also enquired of management about their own identification and assessment of the risks of irregularities.
We obtained an understanding of the legal and regulatory framework that the group operates in, and identified the key laws and regulations that:
• Had a direct effect on the determination of material of amounts and disclosures in the financial statements. These included the UK Companies Act, pensions legislation, tax legislation; and
• Do not have a direct effect on the financial statements but compliance with which may be fundamental to the limited liability partnerships’ ability to operate or to avoid a material penalty. These included the Financial Conduct Authority regulations.
We discussed among the audit engagement team the opportunities and incentives that may exist within the organisation for fraud and how and where fraud might occur in the financial statements.
As a result of performing the above, we identified the greatest potential for fraud or non-compliance with laws and regulations in the following areas, and our specific procedures performed to address them are described below:
The Limited Liability Partnership’s earns fees from its fund management and investment advisory activities and there is a fraud risk that the fees are inappropriately accelerated or deferred between account periods.
We have gained an understanding that there is a significant risk of material misstatement relating to revenue recognition and to the cut off assertion specifically around the year end. To address this risk:
• We have an understanding of the revenue process, including procedures for determining the fees due in accordance with policies and agreements and the flow of financial information into the general ledger;
• Assessed the design and implementation of controls in the revenue process specifically focusing on the controls that address revenue recognition cut-off; and
• Performed additional cut-off testing around the year-end date by reviewing the bank statements after date to ensure amounts have been recorded in the correct periods.
In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override. In addressing the risk of fraud through management override of controls, we tested the appropriateness of journal entries and other adjustments; assessed whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business.
In addition to the above, our procedures to respond to the risks identified included the following:
• reviewing financial statement disclosures by testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
• enquiring of management and in-house legal counsel concerning actual and potential litigation and claims, and instances of non-compliance with laws and regulations; and
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with relevant regulatory authorities.
There are inherent limitations in the audit procedures described above and the primary responsibility for the prevention and detection of irregularities including fraud rests with management. As with any audit, there remained a risk of non detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.
A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of my Report of the Auditor.