Why should Trustees speak to their auditors on a regular basis?

The stewardship of legacy defined benefit pension schemes is becoming increasingly challenging as trustees seek to mitigate ongoing funding risk through complex investment and liability management techniques. The annual audit is a vital part of the governance process and trustees need to involve their auditors early to maximise the value that they obtain from it.

Our client was implementing a suite of interest rate and inflation swap contracts using derivatives to mitigate these aspects of their ongoing liability risks.

From an audit perspective, we were involved from the outset and were given the opportunity to understand the due diligence that was being performed by the investment advisors on behalf of the Trustee.

In considering our audit approach at this stage, we were able to advise the Trustee on what further due diligence information would assist with our year end audit process. This also included consideration of the collateral arrangements that were to be utilised, the assessment of the counterparties involved and understanding the form and timeliness of the information flow from the Custodian. A further consideration was the role of the custodian in testing valuations as part of their routine work.

By understanding the implementation of the contracts at an early stage, we were able to identify what audit work would be required at the year end and also where the Trustee would require added assurance as part of the audit process.