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Independent auditor’s report to the Chief Minister of the States of Jersey

Opinion

We have audited the financial statements of the Jersey Financial Services Commission (the JFSC) for the year ended 31 December 2019 which comprise the income and expenditure account, the statement of financial position, the statement of changes in accumulated reserves, the statement of cash flows and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard in the United Kingdom and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

give a true and fair view of the state of the JFSC’s affairs as at 31 December 2019 and of its surplus for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Financial Services Commission (Jersey) Law 1998.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the JFSC in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

the Commissioners’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the Commissioners have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the JFSC’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter	How we address the matter in our audit
Income recognition – existence including cut-off Revenue consists of regulatory and registry fees, for which annual fees run from different dates throughout the year depending on the specific fee. Because there is a judgment involved in the timing of recognition and the amount to recognise there is a risk that revenue recognition policies are not appropriate, revenues do not exist, or that revenue may be incorrectly recorded in the wrong year resulting in a misstatement of revenue. The details of the accounting policies applied during the year are given in note 1 to the financial statements and details of regulatory and registry fee income are given in notes 4 and 5 to the financial statements respectively.	For regulatory fees, we reconciled the revenue in the financial statements to system generated reports containing details of the licences held. We tested these reports through performing walk-throughs of the relevant systems. We also tested on a sample basis that regulatory fees had been calculated in accordance with fee notices published by the JFSC, agreed to payment received, and was recognised in the appropriate period. We recalculated deferred income to check it had been correctly accounted for in accordance with the JFSC’s accounting policies, and that the appropriate proportion of fees had been deferred in accordance with those policies. For registry fees, we tested on a sample basis that fees had been calculated in accordance with fee notices published by the JFSC and agreed to payment received. We recalculated annual return income based on the number of registered companies, by reference to published annual return rates and the number of registered entities. We tested a sample of registry fee invoices and receipts processed specifically around year- end to check the related income had been recognised in the appropriate period. Key observation: Based on the work performed, nothing has come to our attention which would suggest that revenue has been recognised inappropriately or that it has not been presented in accordance with the JFSC’s revenue recognition accounting policy and the accounting standards.
Completeness of income Given the number of income streams and the ad-hoc nature of some of these fees, there is a risk that certain fees had not been billed to the customer, or that the income had been recognised in the incorrect period due to billing taking place significantly later than it should have. The details of the accounting policies applied during the year are given in note 1 to the financial statements and details of regulatory and registry fee income are given in notes 4 and 5 to the financial statements respectively.	We tested the completeness of regulatory and registry income throughout the year by selecting a sample of businesses from the regulatory and registry department systems, independent of the finance function, and agreeing these to supporting fee income, checking that the fees had been recognised in the appropriate period. We checked for any gaps in the Financing Statement numbers, which are expected to be sequential. We reviewed a sample of post year- end receipts and invoices to check that the related income had been recognised in the appropriate period. Key observation: Based on the work performed, nothing has come to our attention which would suggest that revenue has been recognised inappropriately or that it has not been presented in accordance with the JFSC’s revenue recognition accounting policy and the accounting standards.
Annual return fee surplus During the year ended 31 December 2017, an increase in the annual return fee per entity led to surplus funds being received by the JFSC. This continued throughout 2018 and 2019. The surplus funds have, on agreement with the States of Jersey, been retained by the JFSC, partly as an agreed recurring uplift in the JFSC’s portion of the total Annual Return fees, and otherwise allocated to various projects and expenditure, including the development of the Register of Directors which took place during the year. A risk arose over the accounting treatment as a degree of judgement was involved to ensure that the accounting treatment reflected the substance of the agreement with the Government of Jersey. The details of the accounting policies applied during the year are given in note 1 to the financial statements. Note 12 to the financial statements provides further information on the treatment of the surplus funds.	We considered the JFSC’s paper on the accounting treatment of the surplus to check that the treatment adopted is in accordance with applicable accounting standards. We reviewed correspondence on this matter, including independent confirmation from the States of Jersey of the position at year-end. We reviewed the accounting entries that had been made and compared those to our independent expectations based on available and applicable supporting documentation. Key observation: Based on the work performed, nothing has come to our attention which would suggest that the Annual return fee surplus has been recognised inappropriately or that it has not been presented in accordance with the JFSC’s relevant accounting policy and the accounting standards

Key audit matter

How we address the matter in our audit

Income recognition – existence including cut-off

Revenue consists of regulatory and registry fees, for which annual fees run from different dates throughout the year depending on the specific fee. Because there is a judgment involved in the timing of recognition and the amount to recognise there is a risk that revenue recognition policies are not appropriate, revenues do not exist, or that revenue may be incorrectly recorded in the wrong year resulting in a misstatement of revenue. The details of the accounting policies applied during the year are given in note 1 to the financial statements and details of regulatory and registry fee income are given in notes 4 and 5 to the financial statements respectively.

For regulatory fees, we reconciled the revenue in the financial statements to system generated reports containing details of the licences held. We tested these reports through performing walk-throughs of the relevant systems. We also tested on a sample basis that regulatory fees had been calculated in accordance with fee notices published by the JFSC, agreed to payment received, and was recognised in the appropriate period.

We recalculated deferred income to check it had been correctly accounted for in accordance with the JFSC’s accounting policies, and that the appropriate proportion of fees had been deferred in accordance with those policies.

For registry fees, we tested on a sample basis that fees had been calculated in accordance with fee notices published by the JFSC and agreed to payment received.

We recalculated annual return income based on the number of registered companies, by reference to published annual return rates and the number of registered entities.

We tested a sample of registry fee invoices and receipts processed specifically around year- end to check the related income had been recognised in the appropriate period.

Key observation:

Based on the work performed, nothing has come to our attention which would suggest that revenue has been recognised inappropriately or that it has not been presented in accordance with the JFSC’s revenue recognition accounting policy and the accounting standards.

Completeness of income

Given the number of income streams and the ad-hoc nature of some of these fees, there is a risk that certain fees had not been billed to the customer, or that the income had been recognised in the incorrect period due to billing taking place significantly later than it should have. The details of the accounting policies applied during the year are given in note 1 to the financial statements and details of regulatory and registry fee income are given in notes 4 and 5 to the financial statements respectively.

We tested the completeness of regulatory and registry income throughout the year by selecting a sample of businesses from the regulatory and registry department systems, independent of the finance function, and agreeing these to supporting fee income, checking that the fees had been recognised in the appropriate period.

We checked for any gaps in the Financing Statement numbers, which are expected to be sequential.

We reviewed a sample of post year- end receipts and invoices to check that the related income had been recognised in the appropriate period.

Key observation:

Annual return fee surplus

During the year ended 31 December 2017, an increase in the annual return fee per entity led to surplus funds being received by the JFSC. This continued throughout 2018 and 2019. The surplus funds have, on agreement with the States of Jersey, been retained by the JFSC, partly as an agreed recurring uplift in the JFSC’s portion of the total Annual Return fees, and otherwise allocated to various projects and expenditure, including the development of the Register of Directors which took place during the year.

A risk arose over the accounting treatment as a degree of judgement was involved to ensure that the accounting treatment reflected the substance of the agreement with the Government of Jersey.

The details of the accounting policies applied during the year are given in note 1 to the financial statements. Note 12 to the financial statements provides further information on the treatment of the surplus funds.

We considered the JFSC’s paper on the accounting treatment of the surplus to check that the treatment adopted is in accordance with applicable accounting standards.

We reviewed correspondence on this matter, including independent confirmation from the States of Jersey of the position at year-end.

We reviewed the accounting entries that had been made and compared those to our independent expectations based on available and applicable supporting documentation.

Key observation:

Based on the work performed, nothing has come to our attention which would suggest that the Annual return fee surplus has been recognised inappropriately or that it has not been presented in accordance with the JFSC’s relevant accounting policy and the accounting standards

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements.

We determined materiality for the financial statements as a whole to be £315,000 (2018: £290,000). In determining this in both the current and prior year, we based our assessment on a level of 1.75% of average income over a 3 year period. We used income as a benchmark as this is the primary Key Performance Indicator used to address the performance of the business by the Commissioners, and is consistently referenced within the annual report. Average income was used to calculate materiality to ensure any significant increases in fees or aspects of non-recurring income did not bring materiality to an unacceptably high level.

We determined performance materiality to be £230,000 (2018: £211,700). In determining this, we based our assessment on a level of 73% (2018: 73%) of materiality. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements (based on past experience and other factors) and management’s attitude towards proposed adjustments.

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £16,000 (2018: £14,500) as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our audit of the JFSC was undertaken to the materiality level specified above and was performed partly at the JFSC’s office in Jersey and partly remotely due to the restrictions imposed as a result of the Covid-19 virus.

Our audit approach was developed by obtaining an understanding of the JFSC’s activities and the overall control environment. Based on this understanding we assessed those aspects of the JFSC’s transactions and balances which were most likely to give rise to a material misstatement and designed and performed audit procedures in response to that assessed risk.

Other information

The Commissioners are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibility of Commissioners

As explained more fully in the Responsibility for annual report and accounts paragraph in the Annual Report, the Commissioners are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Commissioners determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Commissioners are responsible for assessing the JFSC’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Commissioners either intend to liquidate the JFSC or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

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.

A further description of our 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 our auditor’s report.

Use of our report

This report is made solely to the Chief Minister in accordance with Article 21(3) of the Financial Services Commission (Jersey) Law 1998. Our audit work has been undertaken so that we might state to the Chief Minister those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the JFSC and the Chief Minister, for our audit work, for this report, or for the opinions we have formed.

BDO LLP
Chartered Accountants
Bristol
United Kingdom

11 June 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).