NAO publishes updated Auditor Guidance Note 1 covering integrity, objectivity and independence

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16 Dec, 2016

Under the Local Audit and Accountability Act 2014 (the Act), the Comptroller and Auditor General (C&AG) publishes a Code of Audit Practice which must be complied with by local auditors – those auditing English local public bodies including NHS bodies, police bodies and local authorities. The Act also requires local auditors to have regard to any guidance issued by the C&AG when carrying out an audit under the Code. The National Audit Office publishes the Code and related guidance on their website.

The NAO has published an updated Auditor Guidance Note 1 (AGN/01), which adds material on integrity, objectivity and independence, to which auditors must have regard when applying the Code. AGN/01 states that:

  • if a local public body is a public interest entity (PIE) as defined in the FRC’s Revised Ethical Standard, its auditor must follow the PIE requirements of that standard;
  • if a local public body is not a PIE,  If not, then the local auditor follows the non-PIE requirements of that standard and the requirements of the annex to AGN/01.

 The additional requirements in the Annex include:

  • Clarification that all audit work under the Code, including consideration of arrangements to secure value for money or to consider the exercise of other powers and duties under the Act is audit work.
  • Application of a cap on non-audit services for a year. Fees for permitted non-audit services (with certain exceptions) cannot exceed 70% of the audit fee for the year in question; this is by contrast with the FRC test which is based on a rolling three year average of audit fees. Exceptions to the cap for permitted services include:
    1. audits of examinations of controlled entities;
    2. services to parent bodies that are government bodies (e.g. Department of Health) or relevant national bodies (e.g. NHS England) that are inconsequential and remote from the decision-making of the local audited body;
    3. other assurance (e.g. work on the quality accounts of local health bodies or grant claim certification for local authorities) mandated by legislation, a national body or regulator which are required to be performed by the auditor; and
    4. other services required by EU or national legislation to be performed by the auditor.
  • Specific rules on personal relationships with audited bodies relating to governance roles, employment and political activity.
  • For smaller bodies, for which a limited assurance review is carried out rather than an audit, the full Ethical Standard does not apply. However, prohibited non-audit services cannot be provided and non-audit fees cannot exceed the higher of £250 and 20% of the fee for work carried out under the Code.

The 12 December 2016 version of AGN/01 applies to periods commencing on or after 17 June 2016 – for most public bodies this will mean it will first apply for the year from 1 April 2017-31 March 2018.

A copy of the revised AGN/01 is available here.


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