The Code, which is set to come into effect in April 2020 pending parliamentary approval, sets out what local auditors of relevant local public bodies, such as councils, police, fire and NHS bodies, are required to do to fulfil their statutory responsibilities under the Local Audit and Accountability Act 2014.

The new Code will apply to audits of local bodies’ 2020-21 financial statements.

Key changes to the Code include the introduction of a narrative-style commentary on bodies’ arrangements for securing value for taxpayers, a sharper focus on arrangements supporting financial sustainability, governance, and improving value for money, and clearer expectations on timely and effective auditor reporting.

The final draft maintains the principles-based approach through a single Code covering both local government and NHS sectors.

Feedback from respondents to the consultation largely supported a narrative-style commentary against specified criteria, although some expressed concern this would make comparisons between bodies and sectors more difficult.

The NAO said: ‘In our view, the inclusion of a requirement in the Code to make recommendations where the auditor is not satisfied with the arrangements in place will allow for some comparison between bodies.’

Respondents also stressed that the supporting statutory guidance should clearly set out an expectation that the commentary will provide effective and meaningful reporting on the adequacy of arrangements, and not simply describe the arrangements that the body has in place.

The Code has to be reviewed every five years under the Act, and the NAO confirmed that it would ‘address any emerging issues relevant to the reporting criteria through the underlying statutory guidance’.

On reporting deadlines speicifically for NHS bodies, the NAO has amended paragraph 4.6 of the final draft of the Code to align the deadline for issuing the auditor’s annual report, so that it is issued at the same time as the opinion on the financial statements.

For local government bodies, including fire and police bodies, the deadline remains no later than 30 September.

The explanation of the use of auditors’ additional powers and duties has also been reinstated (para 5.4) to avoid any level of misinterpretation.

These include powers to give local government electors the opportunity to raise questions about the accounts and consider and decide upon objections received in relation to the accounts, apply to the court for a declaration that an item of account is contrary to law and issue an advisory notice, and make an application for judicial review.

There is also some clarity on partnership working, where the auditor has to review multiple suppliers and providers in the supply chain as part of the audit process, and in some instances will have to work with other audit firms to complete the audit.

‘Local public bodies increasingly operate, commission and deliver services in a range of partnerships and other forms of joint working or contracts with other public, private or third sector bodies. In meeting their statutory duties, therefore, the auditor should consider how best to obtain assurance over such arrangements, working effectively with other auditors where appropriate,’ the Code states.

Further detail on partnership working will be addressed in the supporting guidance, NAO confirmed, stating ‘arrangements in respect of partnership working should be considered as part of the work under the criterion looking at arrangements for improving economy, efficiency and effectiveness’.

Gareth Davies, head of the NAO, said: ‘The new Code of Audit Practice puts greater emphasis on timely and effective reporting by local auditors.

‘Its focus on the areas that are important to local bodies will help them to strengthen their arrangements for securing value for taxpayers, and provide transparency and accountability for the public on how well their money is being spent.’

The Code relates to the audit of relevant bodies as set out in Schedule 2 and Schedule 13(3)(1) of the Act. Additionally, Schedule 6 extends this duty to cover the audit of NHS foundation trusts.

NAO Code of Audit Practice 2020, effective April 2020