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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 JFSC for the year ended 31 December 2020 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 applicable in the UK 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 affairs of the Jersey Financial Services Commission (the JFSC) as at 31 December 2020 and 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the Audit Committee.

Independence

Following the recommendation of the audit committee, we were appointed by the JFSC in 2007 to audit the financial statements for the year ending 31 December 2007 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 14 years, covering the years ending 31 December 2007 to 31 December 2020. We remain 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. The nonaudit services prohibited by that standard were not provided to the JFSC.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the Commissioners’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Commissioners’ assessment of the JFSC’s ability to continue to adopt the going concern basis of accounting included:

Review and challenge of management’s going concern assessment through evaluation of management's methods to assess going concern, evaluating the reliability of underlying data, challenging of key management assumptions and consideration of management’s plans for future action;
Review and challenge of management’s forecasts (including stress-tested forecasts) through assessment of key assumptions used including implied revenue growth rates and forecasted operational costs and testing the reasonableness of stress tested scenarios used by management; and
Review of disclosures made in the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the JFSC’s ability to continue as a going concern for a period of at least 12 months from when the financial statements are authorised for issue.

Our responsibilities, and the responsibilities of the Commissioners with respect to going concern, are described in the relevant sections of this report.

Overview

Key audit matters		2020	2019
	Income recognition = existence including cut-off
	Completeness of income
	Annual return fee surplus
	Annual return fee surplus is no longer considered to be a KAM due to it not representing a heightened audit risk. This is a result of changes in the agreement with the States of Jersey in relation to Annual Return Fee Surplus eliminating the need for management judgment and estimates that underpinned this risk in the prior year.
Materiality	Financial statements as a whole £348,700 (2019: £315,000) based on 1.75% (2019: 1.75%) of average income over a three-year period.

An overview of the scope of our audit

Our audit was scoped 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 in the financial statements and designed and performed audit procedures in response to that assessed risk. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Commissioners that may have represented a risk of material misstatement.

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) that 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 the scope of our audit addressed the key audit matter
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 judgement 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. 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 walkthroughs of the relevant systems and performing sample testing of line items within the reports. 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 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. 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.

Key audit matter

How the scope of our audit addressed the key audit matter

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 judgement 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.

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 walkthroughs of the relevant systems and performing sample testing of line items within the reports.

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 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.

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:

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 as a whole.

	2020 £	2020 £
Materiality	348,700	315,000
Basis for determining materiality	1.75% of average income over a three-year period
Rationale for the benchmark applied	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.
Performance materiality	254,500	230,000
Basis for determining performance materiality	73% of materiality has been applied for determining performance materiality.

Reporting threshold

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £17,400 (2019:£16,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.

Responsibilities of Commissioners

As explained more fully in the annual report, the Commissioners of the JFSC 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 JSFC’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 JSFC or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial services

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.

Extent to which the audit was capable of detecting irregularities, including fraud

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 obtained an understanding of the legal and regulatory frameworks that are applicable to the JFSC. These include but are not limited to compliance with the Financial Services Commission (Jersey) Law 1998.

We assessed compliance with the these laws and regulations through enquiry with management and the Audit Committee and review of board meeting minutes.

We assessed the susceptibility of the JFSC’s financial statements to material misstatement, including how fraud might occur. In addressing the risk of fraud including management override of controls, we have performed journals testing based on a set of fraud risk criteria and verifying the business rationale. Fraud risk in revenue was tested substantively involving sample testing of transactions both throughout the year and at year-end to verify both existence of the transactions recognised and completeness of amounts reported.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities is available on the Financial Reporting Council’s website. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the Chief Minister of the States of Jersey 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 the Chief Minister 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 Chief Minister, the JSFC and the Commissioners of the JFSC as a body for our audit work, for this report, or for the opinions we have formed.

Neil Dimes (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Bristol 7 May 2021

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