ICAEW has submitted a letter to HM Treasury (HMT), copied to other key departments including the Department for Business, Energy and Industrial Strategy (BEIS) and the Ministry of Housing, Communities and Local Government (MHCLG), emphasising the need to consider the public sector implications of the BEIS consultation on restoring trust in audit and corporate governance.
The letter, which supplements ICAEW’s response to the consultation, covers both the proposals that will have a direct impact on the public sector and elements of the other proposed reforms that could, where appropriately adapted, strengthen public sector audit, reporting and governance.
As the letter points out, it is arguably even more important for the public that audit and corporate reporting are functioning effectively for public sector bodies as it is for large private companies. When public sector bodies fail to operate effective internal controls and govern themselves appropriately, it can result in an increase in taxes and the reduction in the quality of essential public services.
ICAEW are therefore recommending in the letter that BEIS, HM Treasury and MHCLG should conduct a separate review to consider how the principles in the consultation could apply in the public sector. The letter offers some initial suggestions for where this review could focus, including strengthening the requirements around fraud and adapting the audit and assurance policy for the public sector. These are also areas that ICAEW believes should be a focus of the reforms for large private sector companies.
The letter reinforces the point made in ICAEW’s response to the consultation that the proposed Public Interest Entity (PIE) criteria is too broad and risks capturing entities where a public interest case cannot be made. We highlight that relatively small public sector bodies, such as NHS Property Services, may meet the proposed thresholds but high profile bodies such as HS2 do not. As many of the proposals are not relevant to the public sector, we call for the government to exclude public sector bodies from the PIE definition. Instead it should consider any new requirements for large public sector bodies as part of the separate review we are recommending.
We also use the letter to highlight that the issues of capacity and market concentration of the FTSE 350 audit market are even more acute in the local audit market. We reiterate our calls for urgent action to strengthen capacity including sustainable funding that takes account of the increasing requirements on auditors.
You can read the letter here: Public sector implications of restoring trust in audit and corporate governance
You can read the full response to the consultation here: Restoring trust in audit and corporate governance
