Tower Hamlets Council is facing a disclaimed audit opinion that could persist until the 2029-30 financial year, according to projections shared at a recent Audit Committee meeting.
External auditors EY have indicated that an unmodified opinion, meaning the accounts are considered accurate and fair, might not be achievable until 2029-30, assuming all goes well with the council's efforts to address its financial and control environment issues. This projected timeline suggests the opinion would likely move from disclaimed to qualified, and then to unqualified over that period.
Stephen Reid, partner at EY, explained during the meeting on Thursday, 23 July 2026, that the complexities of local government accounting, particularly concerning property, plant, and equipment (PPE) and the nature of reserves, differ from corporate entities. He estimated that it could take until 2029-30 to achieve an unmodified opinion.
Councillor Kamrul Hussain inquired about the timeline for moving away from disclaimed audit opinions, to which Reid responded that it was too early to comment on progress but outlined the potential timeframe.
The council's Audit Committee was presented with provisional audit plans for the year ending 31 March 2026, which identified significant risks including management override of controls, revenue recognition, and property, plant, and equipment valuations. These risks have not changed from the prior year, though there has been a subtle shift in focus on one revenue recognition risk.
Specific Issues Hindering Unmodified Opinion
Several specific financial and control environment issues are preventing Tower Hamlets Council from achieving an unmodified audit opinion. These include:
- Management override of controls: This is a presumptive significant risk for all audits, meaning auditors must spend additional time focusing on this area.
- Revenue recognition: Similar to management override, this is a presumptive significant risk requiring enhanced auditor focus. This includes a risk that income from external sources with conditions, such as Section 106 and Community Infrastructure Levy (CIL), may be overstated if conditions are not met.
- Property, Plant and Equipment (PPE) valuations: These represent very material balances on the council's balance sheet, and the 2025/26 financial year involves a full valuation of these assets. The implementation of IFRS 16 leases is also an additional area of focus due in part to challenges in concluding its implementation in the prior year. Persistent issues with PPE valuations have been a long-standing problem.
- Opening balances and historical data: There are issues related to opening balances and the ability to rebuild audit evidence back to 2020/21.
- Quality of working papers and audit evidence: The Council was not fully prepared for the audit in 2024/25, with issues related to the quality of working papers, provision of appropriate supporting evidence, and completeness of draft financial statements, including IFRS 16 related entries and disclosures.
An additional risk for the current year relates to the minimum revenue provision (MRP) policy. The Council adopted the annuity method for its MRP policy for 2024-25, a change from the previous straight-line method. The annuity method results in lower MRP charges in earlier years and higher charges in later years, providing greater flexibility for current investment but placing greater pressure on future financial sustainability. EY identified that this policy change did result in a material impact on the Council's reserves,
and auditors were unable to gain sufficient assurance prior to signing the 2024-25 audit that they were comfortable with this policy change.
Value for Money Arrangements
EY expects to report the majority of significant weaknesses and statutory recommendations from the previous year regarding the Council's value for money arrangements. In total, EY identified four statutory recommendations and ten significant weaknesses in their previous year's Value for Money reports.
Audit Costs and Long-Term Implications
Stephen Reid from EY explained that audit fees are based on assumptions of a perfectly functioning control environment. Until the Council sustainably addresses its matters and reduces its risk profile, audit costs will remain higher. He indicated that a reduced risk profile would lead to less work required under auditing standards, thus reducing costs, but did not provide a specific estimated increase or projected reduction.
Councillor David Edgar asked how the key risks were identified, and Reid explained it was a combination of EY's two years of auditing the authority, specific planning discussions with officers, and wider knowledge of the local government sector.
Councillor Mohammed Omar Mehdi questioned assurances on audit completion timelines and potential cost reductions. Reid confirmed the audit had commenced and was progressing well, but that the opinion for 2025/26 would likely be another disclaimed audit opinion.
Richard Ennis, Interim Corporate Director for Resources, endorsed the positive working relationship with EY and highlighted the Council's commitment to addressing issues to reduce audit fees. He also mentioned the publication of reserves information.
For more details on the audit committee meeting, refer to the Agenda frontsheet and the Public reports pack.
