Auditing and Assurance Standards and Guidance

FRC Practice Notes

PN 14 (Revised) The audit of housing associations in the United Kingdom (January 2014)

Audit risks affecting Housing Associations

Identifying and Assessing the Risk of Material Misstatement Through Understanding of the Entity and its Environment: ISA (UK and Ireland) 315.

Applicable Business Risks:

dotbullet    Entering into increasingly complex and risky financing arrangements

dotbullet    Diversifying into non-social housing activities

dotbullet    Risks surrounding working in partnerships and joint ventures

dotbullet    Increasing regulatory requirements for properties to be improved.

dotbullet    Motivations for Housing Association management to present a biased financial picture
 
144.The auditor seeks to understand the overall structure, activities, finances and governance of the Housing Association. Areas the auditor consider include:
 dotbulletThe overall governance arrangements of the Housing Association which support the systems of internal control including the audit committee, risk management and internal audit arrangements.
 dotbulletThe main business activities of the Housing Association and any significant developments since the previous audit, for example new development activity, acquisitions or disposals and organic growth areas.
 dotbulletCross-subsidies between different business activities of the Housing Association.
 dotbulletComponent accounting and the need to determine useful economic lives for separate components of fixed assets.
 dotbulletPolicies on capitalisation of internal costs, interest incurred during development and the capital/revenue split of works to existing properties.
 dotbulletThe financing and funding structure which supports the Housing Association's activities and any significant internal or external developments which may impact on the Association.
 dotbulletThe framework for business planning, financial and performance management.
 dotbulletThe Annual Regulatory Assessment including published regulation plans and/or viability assessments. The nature of regulatory assessments varies between countries and details are set out in the Regulation of Housing Associations section of this Practice Note.
 dotbulletChanges in accounting treatment of financial statement items following changes in accounting standards.9
145.Housing Associations may participate in complex projects such as schemes developed under the Private Finance Initiative (PFI). A Housing Association may, for example, undertake the renovation and management of properties or provide other services, such as residential care, over a defined period without having ownership of the properties. Auditors consider the accounting for such schemes in accordance with Application Note F "Private Finance Initiative and similar contracts" of FRS 5 "Reporting the Substance of Transactions".
9 In 2014, for example, the implementation of FRS 102 may give rise to significant changes in treatment of certain financial statement items.
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