Code of Audit Practice 2010 for Local Government Bodies

My Lords, the Audit Commission, in accordance with its obligations under the Audit Commission Act 1998, has prepared codes of audit practice to prescribe how auditors must carry out their statutory functions when auditing local government and local National Health Service bodies. The codes are to be used by the independent professional auditors that the Audit Commission appoints to audit local government and NHS bodies. The commission, as previously, has prepared separate codes for local government and the NHS. This reflects the different accounting, corporate governance and performance management frameworks in the two sectors. The codes prescribe the way in which the external auditors of local authorities and NHS bodies should discharge their statutory duties when auditing the accounts of those bodies. The codes must be approved by affirmative resolution by both Houses of Parliament every five years, and the end of the five-year period for the current codes is 9 March 2010. These draft codes have already been debated in another place. In preparing the codes, the commission has worked closely with and consulted key stakeholders, including the representative associations of local government and health bodies, finance directors, the accountancy profession and their partner firms. The preparation of separate codes has facilitated the process of agreeing the NHS code with the Care Quality Commission. In line with the Audit Commission Act, the commission has obtained the agreement of the Care Quality Commission to the changes made in the NHS version of the code. The codes are high-level documents that prescribe the way in which auditors of local government and of local NHS bodies carry out their audit functions. They omit material that simply summarises the requirements of professional auditing standards. Changes to the codes are minimal, reflecting legislative and technical changes since the current codes were approved, including the abolition of the audit of best-value performance plans for specified local government bodies and the replacement of the Healthcare Commission by the Care Quality Commission. Consultation on the draft codes has seen the proposed changes to the codes endorsed by stakeholders. The codes set the scope of the audit and auditor’s objectives, and the general approach to be adopted by auditors in meeting their responsibilities. They also underline the need for auditors to preserve their independence and to ensure the security and confidentiality of data received or obtained in the course of the audit. In addition, they prescribe how auditors should carry out their statutory functions in respect of the audit of financial statements, the core of the audit process. They cover the auditor’s responsibilities to satisfy himself or herself that the audited body has put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources—in other words, value for money. The codes also cover reporting the results of the audit work to the audited body, including through the published annual audit letter and, where appropriate, how auditors should exercise their statutory reporting powers. Public reporting by auditors is a powerful way of holding public bodies to account. Lastly, the local government code sets out how auditors should engage with local electors who choose to exercise their rights to ask questions about local authorities’ accounts. The codes come into effect when they have been approved here and in another place and, once in place, will continue to provide assurance that public bodies will be subject to effective independent audit. The codes are very important documents, being key elements of the accountability framework for local government and the National Health Service at a time when there is intense interest in spend by public bodies, where there is a drive to stretch every public pound and to cut waste. I beg to move.