Inside story

3 May 12
Accounting in the public sector has had its fair share of change. Now it is the turn of internal audit, with new standards set to be published later this year
By Keeley Lund | 1 May 2012

Accounting in the public sector has had its fair share of change. Now it is the turn of internal audit, with new standards set to be published later this year

Public sector accounting has been through a lot of changes, from the move to accrual accounting some years back to the current big step to adopting International Financial Reporting Standards.

CIPFA and the Local Authority (Scotland) Accounts Advisory Committee have begun a post-implementation review to see what lessons can be learnt from the process and how the Code of Practice on Local Authority Accounting can be improved in the future.

But by the end of this year, it won’t just be accounting that has changed. Internal auditing now faces its own transformation – although this is likely to be a much bigger revolution for local government than for central government and the NHS.

CIPFA and the Institute of Internal Auditors announced a year ago that they were going to work together to develop the internal auditing profession in the public sector. This includes drawing up pan-public sector standards, based on the mandatory element of the global IIA’s International Professional Performance Framework. This ‘element’ is wider than just the standards themselves and comprises: a definition of internal auditing, a code of ethics and the standards.

Some of you might already know the IPPF because you are IIA members. Others might work in central government or the NHS, which have been using amended versions of the framework for the past couple of years, respectively the Government Internal Audit Standards and the NHS Internal Audit Standards. The way these two sets of public sector standards have adapted the IPPF have worked well: they reproduce it wholesale and without amendment, but add any supplementary sectoral requirements in boxes within those standards.

At an early stage in the process, the various relevant internal audit standard-setting bodies were approached for their views on developing UK public sector-wide standards. The first response was positive and after initial meetings in autumn 2011, those bodies agreed to develop and manage the new UK Public Sector Internal Audit Standards (PSIAS). In March 2012, the Internal Audit Standards Advisory Board was formed to provide oversight and challenge to the process, taking the Financial Reporting Advisory Board as its model.

Members of the board, which is chaired by Janet Eilbeck, represent the relevant internal audit standard-setters plus practitioner members from central and local governments, the NHS and the private sector. There are also observer members from foundation trust regulator Monitor, the government of the Republic of Ireland and the European Union. Many of the members applied and were interviewed in a competitive process.

The board has now met twice, in March and April, and is due to meet in May and June. It has agreed that the new PSIAS will be published by the end of this year so the timetable is tight. At each meeting, members have been discussing the individual standards and suggesting additional public sector requirements. In between meetings, standards that are not likely to need any extra application boxes are discussed and cleared electronically.

The board will issue a draft set of PSIAS for consultation in the next couple of months. It will seek responses from organisations and individuals across the UK public sector and beyond.

While the development of the PSIAS is being undertaken jointly by the standard setters, it is anticipated that individual sectoral guidance will be published by the respective body for the sector. For example, the CIPFA Audit Panel is taking the lead on drafting a new, fully updated local government code of practice for internal audit that should also be published by the end of 2012.

The PSIAS will apply statutorily to UK central and local government and NHS bodies (excluding foundation trusts). Other types of organisations in the UK follow internal audit standards currently covered by GIAS, the local government code, NHS standards and the IIA’s unadulterated standards, such as housing, charity and further and higher education bodies. These sectors might also wish to adopt the PSIAS in time.

CIPFA, the IIA and the other standard setters believe that the development of the first set of Public Sector Internal Audit Standards represents a major step forward in public financial management.

Keeley Lund is technical manager, professional standards and guidance, at CIPFA. To keep up to date with the work of the Internal Audit Standards Advisory Board, visit Transparent

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