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Comments from the Association of Chartered Certified Accountants
January 2001

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to express its views on the above consultative document issued by the Audit Commission.

We welcome the Commission's resolution to demonstrate transparency, best practice and value for money in its appointments strategy. We believe, however, that the proposed "framework contract" is structured in a way that is likely to inhibit new private sector auditors from entering the market. The enlarged geographic and financial scale of the auditee bodies, coupled with the undertakings required from the audit firms themselves, may prove a significant barrier to smaller accounting firms presently well-able to undertake the audit of a small or medium sized local authority or hospital trust. As a result, the Commission's regime may prove restrictive and may not provide value for taxpayers' money in all situations.

We have particular reservations concerning the likely effectiveness of the proposed "minor audits' sector" in providing a way for new entrants to gain experience to compete in the principal authority market. The resources, skills and competencies required to service the needs of small councils may not be entirely compatible with the needs of larger engagements, thus limiting the possibility of transition. Some (mainly technical competency) issues can be dealt with via the continuing professional development programmes of professional institutes such as ACCA, but by and large we feel that the Commission's intended approach is not necessarily consistent with its' declared aim of expanding the pool of auditors.

Specific Comments

The Commission's consultative document presented fourteen key questions. Our responses to these questions are set out below:

1. Does the analysis of the operational environment in paragraphs 16 to 20 identify the most important developments that might affect the appointment of auditors to local government and NHS bodies in the foreseeable future?

We believe that the Commission has identified the most important developments that might affect the appointment of auditors to local government and NHS bodies in the foreseeable future.

2. What other factors might impact on audit appointments over the medium term?

ACCA believes that developments in the managed audit approach may impact on audit appointments in the medium term.

The Commission may wish to consider the extent to which auditors undertake substantial areas of consultancy work in the local government and NHS sectors generally in the interests of maintaining the auditor's independence.

3. Are the principles of Public Audit as developed by the Public Audit Forum the right ones to inform the development of the Commission's strategy?

We believe that the principles of Public Audit as developed by the Public Audit Forum are most relevant to informing development of the Commission's strategy.

4. Are there other principles to which the Commission should have regard?

Another principle which the Commission could consider when making appointments relates to its own policy on social responsibility reporting.

5. How important is it for the auditor who is reviewing a particular body or function to have experience of:
· other local government bodies in the same geographical area
· other NHS bodies in the same geographical area
· comparable bodies or functions in other areas?

We believe that the latter bullet point is the only relevant criterion regarding the appointment of registered auditors. We also believe that auditors can gain such experience in either the public or private sector. Now that authority accounts are on a comparable basis to the private sector, and with the government's modernisation programme designed to ensure that public sector operate on a business footing, we feel that private sector auditors are able to bring commercial audit expertise that District Audit may lack.

6. Would the answers to the previous questions be different in relation to different aspects of the audit: accounts, financial aspects of corporate governance or performance management?

The answers to the previous questions would not be different in relation to different aspects of the audit.

7. Is different experience required to review a function undertaken in partnership?

ACCA believes that registered auditors who have the experience of company audits, group structures and joint ventures may be better placed for reviewing a function undertaken in partnership than the district auditor.

8. How important is it that a single auditor appointment is made across a whole health economy or community?

We do not believe that it is appropriate to make a single auditor appointment across a whole health economy or community as such practice may sacrifice the public audit principles of independence and contestability and hence does not ensure value for money.

There may appear to be some merit to single auditor appointment from the vantage point of gaining insight of the bigger picture, however, this could also be perceived as a disadvantage if the auditor "cannot see the wood for the trees". ACCA believes that a better approach would be to have a pool of auditors within a whole health economy or community on which the commissioner could call, on a rotational basis, to audit individual entities. This approach would ensure that a fresh perspective is brought to each audit.

9. Where it is not possible or desirable to make a single auditor appointment across a whole health economy or community, what measures should be taken to support collaboration between different auditors within the defined area?

The Commission could ensure collaboration within a defined area by setting the rules of engagement by requiring, for example, that auditors within the pool must:

· share specific information
· respond to queries from other auditors within a certain time
· disclose any information found in the course of the audit that may have consequences for another body to that bodies auditors.

10. What part should audited bodies play in the appointment process?

ACCA acknowledges that the Commission has a statutory responsibility for appointing external auditors to local authorities and NHS bodies and that the Commission is required to consult audited bodies before making appointments. We can see that this practice goes a long way to ensure that auditors are both independent and seen to be independent. We feel that if all auditees participated in the appointments process it would lead to a more co-operative approach to the whole process.

We welcome the Environment Select Committee's recommendation of phasing out selective market-testing while at the same time allowing some audited bodies to have greater control over audit appointments.

11. Should the Commission consult audited bodies individually, in groups or both?

We believe that the Commission should consult with audited bodies individually and in groups within a defined area to establish the best approach to audit that suits their needs

12. What issues, other than fees and quality of the proposed audit team, should consultation cover?

The consultation should also establish the scope and timing of the audit in advance, based on feedback from previous audits

13. How should audited bodies assess auditor performance?

ACCA believes that the onus is on the Audit Commission to ensure that they get the necessary feedback from audited bodies about their auditors performance. This feedback should be made public.

14. What other steps should the Commission be taking through the appointments process to maintain audit quality and improve value for money?

ACCA believes that in general the public sector would benefit from making more use of private sector auditors who had "commercial" audit experience. In particular the minor audit section would benefit from the use of small audit firms which are likely to be more familiar with the circumstances of smaller entities, which tend to need a more personalised service than large accountancy firms can afford to provide.

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