Public Sector Audit in Scotland

Scotland has a mixed model where both Audit Scotland and private sector firms are appointed auditors for public sector bodies.

Who audits the public sector in Scotland?

Scotland has a different model for public sector audit than the rest of the nations of the United Kingdom. Audit Scotland undertakes the external audits of around two thirds of bodies across the Scottish public sector. The remainder of audits are carried out by public sector firms. Appointments are for periods of five years.

The Accounts Commission, a Board consisting of 12 members, is responsible for securing the audits of local government bodies. The Auditor General for Scotland is responsible for appointing auditors to the majority of other public sector bodies in Scotland, including the Scottish government, non-departmental public bodies, further education colleges and NHS bodies. Audit Scotland carries out the procurement of auditors on behalf of both the Accounts Commission and the Auditor General for Scotland.

A small number of local or central government owned companies and charities are not within the remit of the Accounts Commission or Auditor General. They are audited under charities and companies law by the private sector. The UK Comptroller and Auditor General also has a statutory obligation to produce an annual report to the Scottish Parliament on HMRC’s administration of the Scottish rate of income tax.

Public sector financial reporting in Scotland

Scottish central government and NHS bodies are required to prepare their financial statements under International Financial Reporting Standards (IFRS), as adapted by HM Treasury’s Financial Reporting Manual. There are also additional requirements set out in the Scottish Public Finance Manual. Central government companies apply International Financial Reporting Standards and apply the requirements of the Financial Reporting Manual where they do not conflict.

Local authorities and other local government bodies produce accounts under CIPFA / LASAAC’s Code of Practice on Local Authority Accounting, which is based on IFRS. In addition, the Accounts Commission issues statutory directions about the information needed in performance reports.

Whilst Scottish government bodies and agencies produce separate accounts, the Scottish government does not have “departments” like Northern Ireland or the United Kingdom government. The Scottish government produces a single set of consolidated government accounts that include Scottish government agencies and NHS trusts. It does not include local authorities or other local government bodies, further education colleges, non-departmental public bodies, and Scottish government companies.

All Scottish government bodies, both central and local government, are included in the UK-wide Whole of Government Accounts, audited by the National Audit Office.

Public sector financial audit in Scotland

As in the rest of the UK, the financial audits of the public sector in Scotland are carried out in accordance with International Standards on Auditing (ISAs) as interpreted for the public sector by Practice Note 10 - the Statement of Recommended Practice on audit in the public sector.

The Auditor General and the Accounts Commission issue a joint Code of Audit Practice each year, which sets out the requirements for appointed auditors. This establishes a wider scope for public sector audit as it requires auditors to consider financial management, financial sustainability, leadership and governance and the use of resources to improve outcomes as part of the audits.

In addition, the Code sets out that appointed auditors are required to produce an annual audit plan and report for each body. The annual audit report is published on the Audit Scotland website and includes significant matters arising on the audit, recommendations for improvement and progress at implementing previous recommendations.

The financial audit opinions of the Scottish Government and its agencies, Scottish non-departmental public bodies, Scottish NHS bodies and further education colleges include an opinion on whether income and expenditure are in line with the purposes intended by the Scottish Parliament (the “regularity” opinion).

There is no regularity opinion for local authorities or other local government bodies as they are not accountable to the Scottish Parliament.

Wider public sector audit work in Scotland

Under the Code of Audit Practice, public sector auditors carry out a variety of other audit and assurance work. Examples of this wider work include:

Performance audit

Audit Scotland carries out studies to examine the economy, effectiveness and efficiency of bodies or programmes. The studies may look at particular bodies, sectors, programmes or be cross-cutting. The output is normally a report to Parliament or the Accounts Commission.

Best value audit

Appointed auditors of local authorities and other local government bodies are required to assess best value arrangements. Auditors report on the results of this in the annual audit report, including progress at responding to previous best value findings and recommendations.

Best value assurance reviews

The Accounts Commission appoints a Controller of Audit, who is required to report at least once every five years on each local government body’s statutory duty of best value and community planning. The Accounts Commission publishes its findings about a local government body’s approach to and performance in meeting its best value and community planning duties based on an audit report produced by the appointed auditors.

Statutory reporting and objection hearings

Local electors can object to the accounts but, unlike in England, the appointed auditor cannot issue a report in the public interest itself but must refer issues to the Controller of Audit or Auditor General. Both the Auditor General and Controller of Audit have powers to issue statutory reports and auditors are, therefore, required to raise significant issues that arise during the audit with them.