Introduction
Public sector audit gives citizens assurance that money provided through their taxes is accounted for correctly and spent as intended. Its importance in the UK has been understood for centuries, with the earliest reference to a public sector audit dating from 1314.
Recent high-profile findings about financial sustainability issues in local government and personal protective equipment procurement during the COVID-19 pandemic highlight the continuing value of public sector audit.
Public sector financial reporting
The UK is one of very few countries to have adopted International Financial Reporting Standards (IFRS) in the public sector. This means public sector bodies produce financial statements under the same accounting standards as their private sector counterparts.
HM Treasury’s Financial Reporting Manual adapts and interprets IFRS for central government across the UK, while CIPFA / LASAAC’s Code of Practice on Local Authority Accounting plays the same role for local government.
Public sector financial audit
As public sector bodies report under IFRS, it should not be surprising that public sector financial audits are carried out under the International Standards on Auditing (ISAs). These are interpreted for the public sector by Practice Note 10 - the Statement of Recommended Practice on audit in the public sector.
Despite the similarities with private sector audit, public sector audit in the UK has a much broader remit.
In addition to the ‘true and fair’ opinion, auditors also give a regularity opinion for most public sector bodies, with the exception of local government bodies. This covers whether the audited body has spent and received money in line with the intentions of the relevant parliament. The audit of regularity is usually part of the financial audit, but it can sometimes be carried out as a separate assurance engagement, such as for academy school trusts in England.
Wider public sector audit work
Public sector auditors also carry out a variety of other audit and assurance work to hold public sector bodies accountable for their spending. Below are the main types of work they undertake:
Value for money audit/performance audit
These are studies evaluating the effectiveness and efficiency of a project, programme or other area of government spending chosen by the auditor. Most of these reports will seek to reach a conclusion on value for money and issue recommendations for improvement.
Conclusions on arrangements over the management of public spending
Auditors of local government and NHS bodies are required to issue an annual commentary or conclusion on the body’s management of public spending. The precise requirements vary between the four nations (you’ll find more detail on the related nation-specific web pages).
Investigations
These pieces do not evaluate the expenditure. Instead, they set out the facts about an area of public spending where concerns have been identified.
Grant certification and other assurance engagements
Some public sector auditors are contracted by grant-paying bodies or required by legislation to carry out assurance engagements over grant claims or related returns.
Public reporting & quasi-judicial functions
Auditors of most public sector bodies have special powers to issue public reports or report to Parliament to bring important matters to the attention of the public.
Local electors have the power to object to local government accounts. In response the auditor needs to consider whether the objection has merit and, if so, whether to issue a public report or apply to court to declare an item of expenditure unlawful.
Other work
Public sector auditors also provide a variety of good practice guidance, briefings, overviews and summaries to support audited bodies, parliament and other relevant stakeholders. The exact nature of audit work carried out differs between the various types of body and the different nations.
Who audits the public sector?
Although private audit firms carry out some public sector audit work in each of the UK nations, the majority of public sector audit in the UK is undertaken by the four national audit agencies:
- National Audit Office (NAO)
- Audit Scotland (AS)
- Wales Audit Office (WAO)
- Northern Ireland Audit Office (NIAO)
The exact scope of the work of the national audit agencies varies between the nations of the UK. For example, the Wales Audit Office audits local government on behalf of the Auditor General for Wales but local government in England is audited by private sector audit firms. There is no specific England Audit Office because there is no separate English government or Parliament.
Further reading
For more information about how public sector audit operates in each of the nations of the UK, please refer to our nation specific pages: