ICAS responds to PSAA consultation on audit tendering
ICAS responds to Public Sector Audit Appointments consultation on audit tendering for local public bodies in England.
We support the proposal to extend the five-year tenure by two years as offering useful flexibility. However, we stress that it is appropriate to assess periodically and challenge what is an appropriate tenure period for achieving audit quality and auditor independence (both actual and perceived). It is also important to consider the potential costs (both financial and in terms of the efficiency and effectiveness of the audit) of rotating too frequently.
A fundamental aspect of achieving audit quality is for an organisation to have effective governance arrangements around the appointment and evaluation of auditors. In particular, we suggest that the roles and responsibilities of audited bodies to select the most appropriate auditor for their organisation need greater emphasis, whatever the auditor appointment framework.
Although it is common to have a separate auditor appointment body in the public sector, we believe that public bodies themselves should take a stronger interest and more active role in audit tendering and monitoring audit quality as part of delivering effective governance and achieving a high-quality audit.
Ultimately the audited body pays for the audit and gains benefit from a quality audit, so it is very much in the organisation’s (as well as the public) interest to ensure that it gets the audit the organisation needs.
Tender evaluation of quality is critical. We agree that it is important to focus on quality first however there is a risk that using bands (in this case 80% quality, 20% price) may be overly quantitative and risk becoming a tick-box exercise. The risk is that the final stage in selection is based simply on price. It should be stressed that the final stages of selection should still focus primarily on quality (please see our public sector audit tendering guide).
It is good business practice to ensure that goods and services are fit for purpose and offer value – this applies to audit as for any other significant purchase. This includes undertaking regular monitoring and evaluation of their auditor to ensure quality and independence is upheld. Find out more in the ICAS guide to evaluating your auditor in the public sector.
For public sector organisations using a national framework where the auditor is appointed centrally, it is still important for the organisation to actively review the service provided by the auditor to enable two-way sharing of information and increase confidence in the quality of the audit.
In the interests of efficient and effective public audit, the PSAA can play a part in actively supporting wider market sustainability. Currently, the auditor registration process appears highly focused on public sector experience which can reduce the supply of auditors. We are not convinced that over-specialisation of auditors is necessary – a balance is needed. Further engagement with the FRC is required to ensure an optimum balance is achieved. More flexibility to allow a wider range of auditor experience to tender would benefit competition and may offer wider cross-sector insights and expertise that could benefit audited bodies.
