Practice note 10, audit of financial statements of public sector bodies in the United Kingdom (revised)

Comments from ACCA
April 2010

ACCA welcomes the opportunity to respond to the above revised Auditing Practice Note for public sector bodies.

Overall, we agree with the changes and updates to Practice Note 10 which reflect the new International Auditing Standards (ISAs) and small changes to the regulatory procedures and guidance for the auditing bodies involved in public sector audit. We have only a couple of specific comments to make and these are as follows.

Those charged with governance (paragraph 101)

We agree that the auditor determines who is charged with governance at the outset of the audit and you quite rightly draw attention to the relevant practice board bulletins for each specific sector. However, in paragraph 101 you seem to imply that an individual or group of individuals, such as a board or committee will be singularly responsible for governance. In practice you will find that multiple stakeholders will be involved in providing the auditor with assurance governance arrangements and in place. For example, in local government the chief executive, director of finance, cabinet, internal audit, scrutiny committee/s and standards committee will all have a critical role to play. It is important for the auditor to recognise this when planning the audit. Perhaps the paragraph would benefit from some re-wording to reflect this.

Materiality and planning and performing an audit (paragraphs 126--128)

We believe that Practice Note 10 should provide more specific guidance on the determination of materiality in auditing the financial statements of a public sector entity. It would seem inconceivable that different audit institutions for the UK public sector could be using different ‘criteria’ for determining materiality. Also, you state that auditors should use their judgement based on their view of who are the key users of financial statements. If you took the view that the public are the key users of financial statements it is conceivable that they would want to see every transaction scrutinised irrespective of whether it was material or not. Clearly, this would not be cost effective or practical.  

We agree that an assessment of materiality remains the auditor’s own and is not dictated directly by any explicit or implicit interest expressed by any individual (such as a Select Committee of the House of Commons) with an interest in the financial statements.