My Lords, as we discussed, Schedule 5 is concerned with the eligibility and regulation of local auditors. It covers independence requirements, the qualification requirements, the monitoring of audits and the inspections. The requirements that may be specified to be an appropriate qualification, enabling a person to act as a local auditor, include their qualification experience, practical training, examinations passed and so on. However, this amendment specifically requires that, in evaluating whether somebody has an appropriate qualification, regard must be had to the need to understand the wider scope of public audit. In fact, this is an issue that also runs for the Financial Reporting Council, which is of course to be the overall regulator.
The scope of public sector auditing was raised at the pre-legislative scrutiny committee—in particular, during the exchange with Mr Steve Freer, the chief executive of CIPFA. On 20 November 2012, he said in response to Question 378:
“Over the past 20 or 30 years—the period in which the commission has been in operation—we have seen that the entry of firms into this market”—
that is, the public sector market—
“is quite difficult. That reflects the fact that the transition from private sector auditing, which firms are clearly extremely good at, to public audit is not straightforward; it is very challenging and difficult”.
He went on to explain that the firms currently involved in public audit work would tend to set up specialist divisions. The responsibilities of auditors in the public sector include not only statutory functions in relation to financial statements but statutory functions in relation to being satisfied that there are proper arrangements for securing economy, efficiency and effectiveness in the use of resources.
It is clearly vital that an understanding of and an ability to undertake this wider role is part of an appropriate qualification for local auditors. The Minister will doubtless tell us that it is implicit in the requirements that may be specified in paragraph 8(5) of Schedule 5, but the amendment would make it explicit. It gives us the chance to probe the Government’s assessment of how many firms are likely to be in the market for local audit work, certainly for principal body audits. We are told that there were just 13 firms which prequalified when the Audit Commission outsourced its in-house practice, although only seven firms were appointed. Schedule 5 provides for the register of auditors of be maintained. When is it expected that the register will first be published and when might we have sight of the draft regulations? In particular, can the Minister say something more about the Government’s assessment of how many firms are likely to be in the market for local audits, and will they be appropriately qualified and have an understanding of the wider role of public audit? I beg to move.
3.45 pm