AUDIT COMMITTEES Contents: Scope Key Points Background Audit Committee Status Audit Committee Handbook
Scope
1. This section gives general guidance on establishing and operating audit committees and providing members of audit committees with support in their roles. The guidance is aimed at all organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable, including the core Scottish Government (SG), SG Executive Agencies, non-ministerial Executive Agencies / Departments and bodies sponsored by the SG.
Key Points 2. All accounting entities to which the SPFM is directly applicable should establish audit committees. The Board (or Accountable Officer) should establish an audit committee of at least three members, all of whom should be either non-executive directors or independent external members. 3. Committees should be chaired by a non-executive director and at least one of the committee members should have recent and relevant financial experience. 4. All audit committees in organisations to which the SPFM is directly applicable are subject to the guidance in the Audit Committee Handbook published by the SG. A degree of flexibility will be appropriate in applying the guidance in the Handbook, particularly with regard to smaller accounting entities. 5. Guidance consistent with the SG Audit Committee Handbook but designed specifically for members of relevant audit committees is provided in Guidance for Core Scottish Government Audit Committees and the NHS Scotland Audit Committee Handbook.
Background 6. Generally accepted good practice indicates that the Boards (and Accountable Officers) of individual accounting entities should ensure that effective arrangements are in place to provide assurance on risk management, governance and internal control. In this respect, the Board (and Accountable Officer) should be advised independently by an audit committee. All such bodies to which the SPFM is directly applicable should therefore establish audit committees. 7. The Board (or Accountable Officer) should establish an audit committee of at least three members. The members should be either non-executive directors or, if there are insufficient non-executives, independent external members. Committees should be chaired by a non-executive director and at least one of the committee members should have recent and relevant financial experience. The terms of reference of the audit committee, including its role and the authority delegated to it by the Board or Accountable Officer, should be made available publicly.
Audit Committee Status 8. The audit committee supports the Board and Accountable Officer with regard to their responsibilities for issues of risk, control and governance and associated assurance through a process of constructive challenge. It has no authority in its own right, either over the management of risk, control, governance etc or over the operations of those bodies which conduct audit and assurance work in the organisation. It may, however, offer opinions or recommendations on the way in which such management is conducted. An audit committee that is asked to act as a risk committee needs to take particular care to avoid taking up the executive risk management function and to maintain its independence.
Audit Committee Handbook 9. All audit committees in organisations to which the SPFM is directly applicable are subject to the guidance in the Audit Committee Handbook published by the SG setting out the fundamental principles of membership and work of audit committees, including explanatory good practice notes. A degree of flexibility will be appropriate in applying the guidance in the Handbook, particularly with regard to smaller accounting entities. 10. Guidance for Core Scottish Government Audit Committees is associated guidance, entirely consistent with the SG Audit Committee Handbook, which has been produced specifically for members of the Scottish Government Audit Committee (SGAC) and Portfolio Audit Committees (PACs), which taken together cover the core SG. Guidance designed specifically for members of audit committees in NHS Boards in Scotland has been available since before devolution with the latest edition of the NHS Scotland Audit Committee Handbook being published in 2004. Where, pending publication of updated guidance, there are any inconsistencies with the SG Audit Committee Handbook, it is the requirements in the SG Audit Committee Handbook that should take precedent. Notification of Problems Identified by Audit Committees in Executive Agencies and Sponsored Bodies11. Audit committees in SG Executive Agencies, non-ministerial Executive Agencies / Departments and bodies sponsored by the SG exist essentially to service the specific assurance needs of their Accountable Officers and Boards. However, they also have a role in providing the assurance required to underpin the Statement on Internal Control provided by the Principal Accountable Officer (the SG Permanent Secretary) alongside the consolidated accounts of the SG. This is demonstrated in the Map of Accountability in the Scottish Government. 12. An audit committee in a SG Executive Agency, non-ministerial Executive Agency / Department or sponsored body is therefore required, at the earliest opportunity, to notify the relevant Portfolio Audit Committee if it considers that it has identified a significant problem which may have wider implications. The audit committees for non-ministerial Executive Agencies / Departments and for sponsored bodies that are not included in the consolidated accounts of the SG (i.e. outwith the SG accounting boundary) need only report relevant issues relating to the "sponsorship" role. PACs will in turn report relevant issues to SGAC. Back to top Page Published / Updated: September 2008 |