KPMG LLP response to FRC Consultation on the Regulation of Auditors Local Public Bodies

Transcription

1 s Tel +44 (0) Audit Fax +44 (0) Canada Square DX Canary Wharf 5 Canary Wharf andrew.sayers@kpmg.co.uk London E14 5GL United Kingdom Sian Burgess Financial Reporting Council 8 th Floor 125 London Wall London EC2Y 5AS Our ref Gm/KPMG Response to FRC Consultation Dear Ms Burgess response to FRC Consultation on the Regulation of Auditors Local Public Bodies Please find enclosed s submission in response to the Regulation of Auditors of Local Public Bodies consultation paper published in July I would be happy to discuss our submission further if that would be helpful. Yours sincerely Andrew Sayers Head of Public Sector Audit Partner,, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. Registered in England No OC Registered office: 15 Canada Square, London, E14 5GL

2 Response to consultation questions Question s response Transparency Reports Q1. Q1 Do you agree that the requirement to publish transparency reports should be restricted to auditors of major local audits (paragraph 4.4.1)? Q2 Do you agree that a firm that audits both major local bodies and private sector public interest entities should be able to publish a single transparency report (4.4.2)? Yes. Yes, but the FRC s existing regulations require transparency reports to be issued by auditors of public interest entities which are defined for this purpose as companies listed on the main market of the London Stock Exchange. The reasonable assumption is that all such companies have a high public profile. By requiring transparency reports to include public bodies exceeding a specified monetary threshold there is a risk that the report will cover bodies that may not be deemed to have a high public profile when internal policies are applied by audit teams in conjunction with internal risk management. For example many NHS Clinical Commissioning Groups will easily exceed the major local body threshold, but it is highly unlikely that auditors would consider their financial statements to receive sufficient national publicity to justify them being deemed to have a high public profile. We accept that it would be very difficult to draft regulations requiring transparency reports to be compiled based on each firm s internal assessment of those public sector bodies which we believe merit similar treatment to private sector public interest entities. The proposed approach has the benefit of simplicity, but it does run the risk that the transparency report will be diluted by the inclusion of bodies that do not have a high public profile. Gm/KPMG Response to FRC Consultation

3 Q3. Do you agree that (i) the information requirements and (ii) the requirements for publication should follow as closely as possible the existing requirements for auditors of private sector public interest entities (paragraph 4.4.3)? Q4. Are there additional information requirements relating to local public audit that we should include as statutory requirements for transparency reports? Q5. Do you have specific comments on the draft regulations at Annex A? Yes, but there is scope for the report on the firm s internal controls with respect to quality and independence of its audit work at major public bodies to be extended to cover controls over the quality of its work in other areas such as our value for money conclusion, challenge work in local government and quality reports for NHS Trusts. This would acknowledge that our reporting responsibilities in the public sector are much wider than our report on the results of our audit of the financial statements. See Q3. No. Local Audit Register Q6. Do you agree that the requirements for the Register of Local Public Auditors should match as closely as possible the existing FRC requirements for the Register of Statutory Auditors (paragraphs 4.8 and 4.9) Q7. Do you have specific comments on the draft regulations at Annex B? Yes. No Gm/KPMG Response to FRC Consultation

4 Engagement Lead Q8. Do you agree with the overall approach at paragraph 4.17 above that the RSB s requirements for approving Engagement Leads need to be rigorous but avoid being too complicated or overly restrictive on allowing access to the local public audit market? Q9. Do you support the detailed proposals, set out at paragraphs 4.18 to 4.28 below, for the experience and practical training requirements individuals should have to meet for approval? We agree that the RSB s requirements for approving Engagement leads need to be rigorous and we will also benefit from them being practical and not overly complex. On the other hand we do not believe that they should be drafted with the express intention of widening access to the market for local public audit. New firms entering the market must be able to demonstrate to the RSB that individuals nominated as Engagement Leads have the appropriate skills and experience of local public audit work to be able to operate effectively. For company audits, Responsible Individuals (RIs) must hold an audit qualification and a company audit practising certificate which is obtained after demonstrating two years relevant post qualification experience. You are proposing that in order to be approved by an RSB as an Engagement Lead individuals with a recognised audit qualification should as a minimum have two years post qualification experience of local public audit and similar audit work in a supervisory role. We would welcome confirmation in FRC Guidance that RSB s will be required to issue local public audit practising certificates after receiving appropriate evidence of relevant post-qualification experience for the required period similar to the system that applies for company audits. CIPFA already requires its members working in public practice to have a practising certificate, but the other accounting bodies do not issue practising certificates for public sector audit work. KPMG requires members of other recognised accounting bodies who do not have a company audit practising certificate to obtain a general practising certificate before making an application to the Audit Commission for approval as an Engagement Lead. We suspect that current practices in other firms will vary. We welcome the prospect of the system being simplified by the introduction of one practising certificate that gives auditors the ability to act as local public audit Engagement Leads, but note that this may cut across existing arrangements put in place by accounting bodies not registered at RSBs. Gm/KPMG Response to FRC Consultation

5 Engagement Lead Q9. (continued) We are concerned at references to experience of local public audit gained elsewhere in the EEA as counting towards the required level of post qualification experience. Given the specialist nature of public sector audits we suspect that it will be extremely difficult for the RSB to devise conditions for a practising certificate which allow it to properly assess whether such experience is equivalent to what would be obtained in the UK. We agree that the RSB should be able to take into account similar public sector audit work in a supervisory role when considering an application for an individual to be approved as an Engagement Lead for local public audit appointments. For example an RI responsible for the audit of an NHS Foundation Trust which is outside the local public audit framework should easily have the skills and experience necessary to be the Engagement lead for an NHS Trust. However under some circumstances we believe that it would be sensible for RSB s to insist that the conditions for issuing a local public audit practising certificate and approving an individual as an Engagement Lead should be a commitment by the firm and the individual to specialist training in local public audit and support from local public audit specialists within the practice. The provision of such support would have to be evidenced as part of the certificate renewal process. Q10. Do you support the proposal at para 4.29 that there should be a specific requirement on an RSB to place a specific obligation on a firm undertaking local public audit work to satisfy itself that the Audit Engagement lead has practical auditing experience of the regulatory and reporting requirements relevant to that audit engagement? We think that the proposal in paragraph 4.29 would be unduly restrictive and would encourage levels of specialisation that would be inconsistent with the practical delivery of local public audits. There are undoubtedly elements of local public audit that are specific to certain types of body within the statutory definition of local audit (challenge in local government for example), but as noted above the conditions for issuing a local public audit practising certificate should include a commitment by the firm to the provision of specialist training and the provision of support to individuals who may lack experience of particular sectors. The conditions for renewal of local public audit practising certificates could also include the requirement for evidence to be provided of relevant CPD and practical experience of specialist work should these conditions be applied by the RSB. Gm/KPMG Response to FRC Consultation

6 Q11. Do you have additional or alternative requirements that you consider should apply to those wishing to take on the responsibility as an Engagement Lead within a firm registered for local public audit? See answers to Q9. and Q10. Gm/KPMG Response to FRC Consultation