The Chartered Institute of Public Finance and Accountancy (CIPFA) has recently updated its position statement on audit committees in local authorities and police bodies in England and Wales, replacing the 2018 version. The 2022 statement, which has been endorsed by the Department for Levelling Up, Housing and Communities and the Home Office, sets out the ‘purpose, model, core functions and membership of the audit committee’.
One notable change compared to the 2018 edition is the removal of suggestions that audit committees undertake a wider role in supporting authorities, such as by reviewing treasury management arrangements or supporting the work of other committees. This addresses concerns raised in Sir Tony Redmond’s 2020 Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting about the broad role of some local authority audit committees distracting them from their core financial oversight role and potentially creating conflicts of interest.
The Redmond Review also recommended that local authorities appoint at least one independent member to audit committees to ensure they have the necessary expertise to carry out their role effectively. As a result, the Department instead asked CIPFA to develop strengthened guidance.
The revised position statement builds on the previous statement, which suggested committees should have at least one independent member, to include an explicit statement that “CIPFA recommends that each authority audit committee should include at least two co-opted independent members”.
Kirsty Stanners, Head of CIPFA UK Policy and Technical, said: “Audit committees are a fundamental cornerstone of an authority’s corporate governance framework. CIPFA’s updated audit committee position statement focuses the remit of the audit committee to ensure that their core role of oversight of governance and accountability is protected.”
Stanners added: “It will also ensure that audit committees are able to access the expertise they need to carry out their role effectively through the introduction of the requirement to include at least two co-opted independent members who complement the knowledge and experience of existing members.”
ICAEW expressed its support for independent audit committee members in its response to the Department for Levelling Up, Housing and Communities’ consultation on the local audit framework. ICAEW highlighted the importance of effective audit committees, pointing to research by Grant Thornton that found weaknesses in governance were a key contributory factor in several high-profile local government financial management failures. As a result, ICAEW called for independent audit committee members to be made a statutory requirement, as it is in Wales.
Other new recommendations to strengthen audit committees in the updated position statement include:
- Audit committee members should be trained to fulfil their role.
- Large committees should be avoided.
- The committees should support the maintenance of effective arrangements for financial reporting.
“ICAEW continues to put the case for strengthening audit committees as central to local governance arrangements and we endorse CIPFA’s 2022 position statement, which we hope will be adopted by all local authorities and police bodies,” said Oliver Simms, Manager, Public Sector Audit and Assurance at ICAEW. “Audit committees play a critical role in providing challenge to council leadership, management teams and auditors on behalf of the public, and they will benefit significantly from the external expertise that independent members can bring.”
Simms would like to encourage ICAEW members to consider offering their skills and experience to local authorities and police bodies looking to recruit independent members for their audit committees.
“This presents an opportunity for chartered accountants to make a real difference in helping to drive improvements in public services and to ensure that public money is spent effectively,” he said.
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