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Comments from The Association of Chartered Certified Accountants

September 2002

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the Learning and Skills Council's Audit Code of Practice (the Code). These comments have been prepared in consultation with members of ACCA's Public Sector Technical Committee, a group of experienced accountants working in the public sector.

This letter has been formatted, as requested in the Appendix to the consultation letter.

1. The Council seeks comments as to whether it should develop detailed guidance notes to support the interim Code, or whether college and provider representative bodies wish to develop this guidance themselves.
   
   ACCA Comments
   The Council should develop detailed guidance notes to support the interim Code. We believe, however, that care needs to be taken to ensure that such notes interpret existing guidance in terms of the particular circumstances of colleges.
   
   
2. The Council seeks comments on a change to the Code that will allow governing bodies to approve the college's annual financial statements on the advice of either the college's finance committee or its audit committee.
   
   ACCA Comments
   We agree with the proposed change to the Code which will allow governing bodies to approve the college's annual financial statements on the advice of either the college's finance committee or its audit committee. Where a college has a finance committee, then this committee, rather than the audit committee, should be responsible for advising the governing body on the approval of the college's annual financial statements.
   
   
3. The Council seeks comments on a change to the Code that will allow governing bodies to add to the terms of reference for their audit committees, within the constraints identified in paragraphs 16 to 18.
   
   ACCA Comments
   The Code should allow governing bodies to add to the terms of reference for their audit committees with the proviso that the prime focus of the audit committee should remain the adequacy and effectiveness of the college's audit arrangements and systems of internal control.
   
   
4. The Council seeks comments on changes to the Code that will make mandatory the audit committee's:
   • right to go into confidential session
   • production of an annual report for the governing body and the principal as accounting officer
   • involvement in the receipt of, consideration of and giving advice to the governing body on the results of the work of the college's internal audit service, financial statements auditor and the auditor appointed by the Council for the college's funding claims
   • involvement in the setting and reviewing of performance indicators for the college internal audit service and financial statements auditor.
   
   ACCA Comments
   We agree with the proposed changes to the responsibilities of audit committees. We also believe that it would be useful for the Code to include guidance along the lines of the self-assessment checklists which were included in the FEFC's Audit Code of Practice for colleges' internal audit service and financial statement auditor. The Code should also refer to the requirement in Government Internal Auditing Standard 10 for an external quality review of the college's internal audit service to be commissioned at least once ever 5 years.
   
   
5. The Council seeks comments on whether the Code should require that college internal services should either:
   • Seek to rely on the work of the Council's contractor for the audit of colleges' funding claims
     or
     
   • Accept assurance from the Council on the college's learner numbers systems, based upon the work of the Council's contractors for the audit of colleges' funding claims.
   
   ACCA Comments
   We believe that college internal services should seek to rely on the work of the Council's contractor for the audit of colleges' funding claims. We recognise, however, that the College's internal audit service will have different objectives to that of the Council's contractor. As a result, the internal audit service may have to undertake some work on the College's student number systems in addition to seeking to place some reliance on the Council's contractor.
   
   
6. The Council seeks comments on whether the Code should require colleges to send to the Council for comment, prior to the contract being awarded, the proposal documents and draft letter of engagement for the successfully tendering audit provider.
   
   ACCA Comments
   The Code should require colleges to send to the Council for comment, prior to the contract being awarded, the proposal documents and draft letter of engagement for the successfully tendering audit provider. Any comments which the Council may have should then be provided to the college audit committee before any formal decision is made to appoint a firm to be the college's internal audit service.
   
   In addition, colleges should be provided with the option of consulting the Council on their shortlisted proposals for their internal audit service. We also believe it would be useful for the Council to maintain a recommended list of auditors to assist Colleges in the appointment of an internal audit service and financial statement auditors.
   
   
7. The Council seeks comments on whether the Code should no longer require colleges to re-tender their internal audit service provision and financial statements audit provision every five years.
   
   ACCA Comments
   We do not believe it is advantageous for Colleges to change their internal audit service providers on a regular basis. The internal audit service provider needs to develop a clear understanding of the College and the way that changes in its external environment may impinge on its activities. For this reason, we believe that there are some clear advantages in the internal audit provider having a longer term contract.
   
   We believe, however, that the case for re-tendering financial statements audit providers on a regular basis is much stronger. For this reason we believe that Council should require that Colleges consider market testing these services at least every seven years. This would make the Council's guidance consistent with that from the HEFCE.
   
   
8. The Council seeks comments on whether the Code should require colleges to secure from their audit service providers a rotation of the person responsible for the service, every seven years.
   
   ACCA Comments
   As stated above, we do not consider that it is advantageous for a College's internal audit service provider or its senior staff to be changed on a regular basis.
   
   We believe, however, that there is a strong argument for maintaining a higher degree of independence between the financial statements audit provider and the College authorities. For this reason, we believe that the financial statements audit partner should not hold this post for more than five years.
   
   
9. The Council seeks comments on whether the Code should require colleges to inform the Council of significant changes to their audit service providers. In the event that the Council considers that the change means that the terms of the original appointments of that service provider can no longer be relied upon, the Council would require colleges to re-tender for that service. Otherwise the requirement to re-tender is removed.
   
   ACCA Comments
   We agree with these proposals.
   
   
10. The Council seeks comments on whether the Code should no longer require colleges to re-tender for their internal audit and financial statements audit provision in the event of a merger.
    
    ACCA Comments
    We agree with the proposal that the Code should no longer require colleges to re-tender for their internal audit and financial statements audit provision in the event of a merger of two or more colleges. We suggest, however, that the Code should advice that they may be able to achieve better value for money from these services if they are market tested at a suitable point after the college merger had been completed.
    
    
11. The Council seeks comments on whether the Code should:
    • Require governing bodies to approve additional work by colleges' internal audit services or external auditors above a minimum value
    • Restrict the nature of additional work that may be performed by college internal audit services and financial statements auditors.
    
    ACCA Comments
    We believe that any additional work which is proposed to be undertaken by the college's internal audit services or financial statements auditors should be subject to formal approval by the Colleges full governing body on the advice of its audit committee. This advice should include the committee's view on whether such work is likely to adversely effect the auditor's independence. While it is not appropriate to set either absolute or proportional limits on non-audit work, the audit committee should consider the cumulative effect that any individual approval might have on the auditor's independence. In addition, we consider that the Code should
    • require fees paid to the financial statements auditors for any additional work to be disclosed separately in a note to the College's financial statements
      and
    • prohibit College internal or external auditors taking on certain work, for example, interim management assignments for the post of director of finance or other senior finance staff.
    
    
    

We note from your comment in paragraph 7 to the Annex to Peter Newson's letter that the Learning and Skills Council is planning to develop advice on the areas for inclusion within internal audit strategic plans. We attached a list of possible areas, to assist with this process.

STANDARD COLLEGE SYSTEMS

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