Auditing and Assurance Standards and Guidance

FRC Practice Notes

PN 10 (Revised) Audit of financial statements of public sector bodies in the UK (October 2010)

Introduction – the role of the public sector auditor

Responsibilities of Public Sector Auditors

Compliance with legislative and other authorities

For central government bodies, public sector auditors express an opinion on whether transactions included in the financial statements conform, where appropriate, with the legislation that authorises them; regulations issued by a body with the power to do so; Parliamentary authority; and HM Treasury authority. The requirement derives from the Exchequer and Audit Departments Act 1921 (and the Government Resources and Accounts Act 2000), whereby the Comptroller and Auditor General has to satisfy himself that expenditure and income (money and other resources provided by Parliament, in the 2000 Act) have been applied in accordance with Parliament's intentions and conforms to governing authorities². Accordingly, he provides Parliament with an explicit, separate, opinion on the regularity of transactions included in the financial statements of central government bodies.

In Scotland, the Public Finance and Accountability (Scotland) Act 2000 requires audits of accounts for which the Auditor General is responsible to include an auditor's report that sets out findings on whether the expenditure and receipts shown in the account were incurred or applied in accordance with relevant statutory provisions and with any applicable guidance (whether as to propriety or otherwise) issued by Scottish Ministers.

There is also a requirement deriving from that set out in paragraph 10 to provide an explicit opinion on regularity in relation to specified National Health Service entities in England which are to be consolidated in the financial statements of the Department of Health, and all National Health Service entities in Wales. This requirement also exists in relation to specified health and social services entities in Northern Ireland.

In other health entities and in local government there is no requirement for auditors to express an opinion on the regularity of transactions, (except in Northern Ireland where the Comptroller and Auditor General does express an opinion on the regularity of transactions for entities in the health sector). However, auditors are required by the Audit Commission's and Audit Scotland's Codes of Audit Practice and the Code of Audit Practice of the Auditor General for Wales to be alert to the question of legality and review the arrangements set in place by the audited body to ensure compliance with laws and regulations. Where unlawful transactions or events come to the auditor's attention the auditor is empowered under legislation to report to the appropriate authorities.

Where expenditure in any part of the public sector involves the application of European Union funds, the European Court of Auditors has a right to audit the final use of monies, wherever they have ultimately been spent. The Court will normally address the regularity with which funds have been applied.

15	This Practice Note provides public sector auditors with guidance on the audit of regularity in the section at paragraphs 273-381.

² In Wales, the equivalent authority comes from section 97(6) of the Government of Wales Act 1998. In Northern Ireland, it comes from the Exchequer and Audit Act (Northern Ireland) 1921, the Northern Ireland Act 1998, the Government Resources and Accounts Act (Northern Ireland) 2001 and the Audit and Accountability (Northern Ireland) Order 2003.

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