The Gateshead Housing Company Limited Audit Strategy Memorandum Year Ending 31 March 2007

1. INFRASTRUCTURE & GOVERNMENT The Gateshead Housing Company LimitedAudit Strategy MemorandumYear Ending 31 March 2007 AUDIT

2. Contents Page • 1. Introduction3 • 2. Your audit team 4 • 3. Audit timetable 5 • External audit approach 6 • Risk profile 7 • Liaison with internal audit 8 • Accounting and Financial Reporting Issues 9 • Fee schedule 10 • Timeline 11 • © 2007 KPMG LLP, a UK limited liability partnership and the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the United Kingdom. The KPMG logo and name are trademarks of KPMG International.

3. 1 Introduction • This document sets out the audit strategy for The Gateshead Housing Company Limited for the year ending 31 March 2007. • The strategy has been developed following discussions with management, an appraisal of the key risks facing the Company and the significant financial statement balances. • The key purposes of this document are to: • confirm our compliance with professional standards; • set out the audit approach in outline; and • identify the key issues which we expect to be the focus of our audit work. Review of The Gateshead Housing Company Limited Explanation Here we will provide you with the names of the key staff involved in your audit, and their contact details. We will also draw to your attention the availability of other services and specialists. Liaison with Internal audit (page 8) Liaison with Internal Audit (page 8) Your audit team (page 4) The milestones of the audit are identified and shown along with the dates by which they should be achieved. Audit timetable (page 5) An explanation of the KPMG Audit Methodology will be provided. There are four key stages to the audit, and the activities undertaken at each stage will be detailed. External audit approach (page 6) The risks facing the business and which will have an impact on the audit are explained, and the impact of these risks on our audit approach will be explained. Risk profile (pages 7) We review planned and possible changes to accounting rules to assess their impact on the financial statements for this year and future years. Accounting and financial reporting issues (pages 9 )

4. 2 Your audit team • We recognise the importance of continuity in our staffing of your audit. Our audit philosophy is based upon the development of long term relationships between our clients and our service team. The contacts at KPMG in connection with this report are: Mick ThompsonAudit Engagement Partner, Newcastle, KPMG LLP Tel: 0191 401 3765Mobile: 07710 592 323mick.r.thompson@kpmg.co.uk Tara Stonehouse Audit Manager, Newcastle, KPMG LLP Tel: 0191 401 3912 Mobile: 07770 966 942 Tara.stonehouse@kpmg.co.uk Mick Thompson Audit Engagement Partner Technical Housing Help Desk Tara Stonehouse Audit Manager Other specialists support John Hart Tax Director Vicky Fletcher Indirect Tax Manager Sara James Tax Manager Robert Dales Actuarial Services Andrew North IRM Senior Manager

5. 3 Audit timetable • We outline below our audit timetable for the provision of our audit plan. • Our work can be split into three key stages: • planning; • an evaluation of your processes and controls; and • final audit fieldwork. • Throughout the process we liaise closely with management and keep them informed of progress. We also formally report our Audit Strategy Memorandum to Management and the Management Letter to the Audit Committee. Review internal audit reports Audit strategy memorandum discussed with management Finalise planning. Evaluation of processes and controls Interim visit Planning – confirmation of risk assessment Final audit fieldwork begins Meetings with management and audit committee to present findings and finalise accounts and management letter

6. 4 External audit approach • Our audit approach is designed to focus on the risks which could result in a material misstatement within the financial statements. This process involves understanding and evaluating the risks in your business. We refine our audit approach to ensure that it reflects as far as possible The Gateshead Housing Company Limited’s changing risk profile.

7. 5 Risk profile • The risks identified below are derived from our understanding of the business and the regulatory environment The Gateshead Housing Company Limited is facing. Each risk has been reviewed for its impact on the financial statements. Those which have significant impact are used to identify key processes and the controls you have over these processes. Each year we will review the Company’s risk profile to identify changes which may impact on our audit.

8. 6 Liaison with internal audit • As part of the external audit process we will consider the work undertaken by the internal audit providers, Gateshead Council, in the year. We will review the 2006/07 audit plan and consider the impact of the internal auditors’ work on our external audit approach. • We will be seeking to review the work undertaken by internal audit covering the key financial systems as set out in the 2006/07 plan. We will review the work undertaken by internal audit during our planning.

9. 7 Accounting and financial reporting issues • There are a number of changes which may impact on the audit of the financial statements of The Gateshead Housing Company Limited for 2006/07.

10. 8 Fee schedule • As outlined in our proposal document, the fee excluding VAT for the audit of The Gateshead Housing Company Limited for the year ending 31 March 2007 is as follows: • This fee assumes that; • You will provide us with draft statutory financial accounts, together with all supporting schedules that we will agree with you at the planning stage of the audit as set out in our prepared by client list. • You will be responsible for typing all the statutory accounts • The fee includes attendance at Audit Committee meetings.

11. 9 Timeline The key progress dates after the year end are presented below: Year end audit timetable Year end cut off 31 March 2007 Interim audit commences 12 February 2007 Final audit commences 14 May 2007 Final audit clearance meeting 24 May 2007 Audit Committee meeting 26 June 2007 AGM 13 September 2007

12. kpmg.co.uk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. © 2007 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. Originally produced in the United Kingdom. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. Publication name: XYZ HousingPublication number: include batch number Publication date: August 2006