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Resetting the dial – getting public audit right

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  • by Guest
  • in Blogs · Technical
  • — 2 Sep, 2019

The complexity of the audit framework and fragmented responsibility for oversight are at the root of delays to the signing-off of last year’s accounts, says Paul Dossett.

The audit profession has been under considerable scrutiny over the last few years and whilst much of the focus has been on the private sector, local government has not been immune.

The financial travails of Northamptonshire, and a small number of other councils, has raised the stakes for the role of the auditor in matters of financial sustainability – even though auditors had been issuing qualified Value for Money conclusions in a number of cases. 

The audits for 2018/19 have also brought local government auditors under wider scrutiny, as Public Sector Audit Appointments (PSAA) reported that approximately only 60% were signed off by 31 July, compared to 87% in 2017/18.

PSAA attributed this delay to resource challenges within some firms, which meant a number of audits did not commence until August 2019, along with increasingly complex accounting and council performance.

How have we got here?

The abolition of the Audit Commission as well as the headline abolition of Comprehensive Area Assessments and outsourcing of the commission’s audit staff, has had a series of unintended consequences.

Firstly, there is no oversight of the relationship between the sector and the audit profession.

Many different players now have a role, such as the Ministry of Housing, Communities and Local Government, PSAA and the National Audit Office, but nobody holds the ring in the way the commission did.

Fees have also reduced by over 60% since the commission was abolished, meaning audit firms are no longer able to provide the same level of regular engagement with senior council finance staff as they used to.

Secondly, the austerity era has encouraged a flourishing of innovation within the sector which, while positive, has also resulted in more complex group structures and accounting requirements.

The decision to apply the current cost accounting of IFRS to the public sector, which is played out in its most complex form in local government, has also increased the complexity of the accounts. 

All of this has increased the difficulty of accounts preparation for councils and in signing off the accounts for auditors. The more complex a set of accounts, the more complex the audit.

In 2018/19, the complexity of the audit framework was, in our view, a bigger driver behind delayed audit opinions than resource shortfalls.

Over two thirds of our delayed opinions were related to complex accounting issues.

Looking for solutions

There are several ways we can look to resolve this challenge.

This is not a problem that can be solved by one stakeholder alone and we need to move away from attributing blame to engaging positively in seeking effective and sustainable solutions.

It is a multi-faceted problem that needs collective and collaborative solutions.

CIPFA has a key role to play in preparing an Accounting Code of Practice that brings the accounts into a meaningful framework for its stakeholders.

The NAO needs to be bold with the 2020 Code of Audit Practice and ensure that issues that really matter to taxpayers (e.g. how councils spend money, how they ensure their sustainability and how they are governed) are at the heart of what public sector auditors focus on.

PSAA needs to be bold in ensuring that audit fees are at a level appropriate to sustain the quality of specialist audit work needed for the sector.

The audit profession also needs to fully engage with these changes and train people to address the traditional wider scope of public audit, rather than the current financial statements-based approach.

As recognised by Sir John Kingman, the regulation of public audit should focus comprehensively on how well the auditor carries out their role in delivering a wider scoped audit, which covers the broader interests of taxpayers in the spending and governance regime of individual councils.

We are playing an active part in this debate and have made public our response to the NAO consultation on audit, calling for a revival of value for money audits and a real focus on what matters to key stakeholders.

We have also already engaged with the Redmond Review and offered our perspective on the way forward for both the accounting and audit framework in the sector.

It is important that public audit works for both councils and taxpayers, that public money is properly governed and that it is sustainable for the future.

We have a chance now to reset the dial and we need to do it with some urgency.

Paul Dossett is head of local government at Grant Thornton UK

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