Managing relationships with your auditor

Many schemes will be stretched to meet the seven-month regulatory window for scheme reporting each year as auditors put their scheme through the wringer.

Industry experts have urged trustees to ensure they have a proper plan in place to maximise the value of the process for the scheme.  

Rather than allowing the audit partner to propose and dictate the entirety of the audit, actually engage early

Mark Hodgkinson

Mark Hodgkinson, director at governance adviser Muse Advisory, said trustees tend to take one of two approaches towards their annual audit.

“Maybe the traditional [view] which we don’t see so much of now is that [auditing] is something that is ‘done to’ the pension scheme each year,” he said.

“The more modern thinking approach is, this is a tool that we as trustees should be engaged with and using as part of our overall risk management.”

Hodgkinson said a more active engagement with audit partners would allow trustees to add value to the audit process.

“Rather than allowing the audit partner to propose and dictate the entirety of the audit, actually engage early and ensure the trustees get some added value from the fees they are paying by having some of their own… uncertainties investigated as a part of the audit," he said.

“Hopefully some of those niggling doubts at the back of their minds can be laid to rest,” he added.

Proportionate approach

The audit process may be a lot simple for smaller schemes with less complex investment structures and fewer transactions.

However, Adrian Kennett, director at independent trustee company Dalriada Trustees, said schemes must take a “proportionate approach” to their audit appointment.

He said: “If you have a small scheme with a reasonably simplistic structure and administrative set-up then you need an appropriate auditor in relation to that scheme.

Sometimes we get appointed to cases where they have one of the big accounting firms appointed to carry out an audit on a scheme where the size of investment movements…is so small that there were hardly any transactions to audit, yet they ended up with a £20k invoice.”

Kennett said schemes can ensure they are on the right tack with their approach by putting a strong plan in place.

“If you have a more complex scheme then you need a more detailed plan with guaranteed dates because there are more parties involved,” he said.

Kennett also encouraged schemes to take feedback seriously and to take action on points highlighted in the management report.

“There can be a perception that auditors are giving you feedback just to validate the fee that they have charged and therefore they’ve gone specifically looking for problems,” he said. “Whatever they come up with needs to be given a reasonable approach.

Steve Carrodus, director at independent trustee firm PTL, said most often auditors would take issue with late contributions or deem that scheme records are not well organised.

“Trustees should already be aware of that,” said Carrodus. “They want to make sure there is a proper audit plan in place.”

Paul Carney, partner at law firm Shoosmiths, said regular and open lines of communication between trustees and auditor can aid the smooth running of the scheme review.

He said: “I could see a breakdown in the relationship [with trustees] if the auditor felt they weren’t being provided with a clear picture of the scheme.

“If trustees understand the importance of the appointment and… communication, that will lead to a very constructive and positive relationship.”