External Audit provides independent scrutiny of an organisation's finances, performing an audit of the financial statement of an organisation. External Audit can also give assurance that organisations have used their resources in discharging their functions properly, efficiently and effectively e.g. through a performance audit. The Audit Committee should engage with the activity of the External Auditor, ensuring that examinations are carried out effectively. As well as considering the results of External Audit work, they should enquire about and consider the External Auditor's planned approach and the way in which the External Auditor is co-operating with Internal Audit to maximise overall audit efficiency, capture opportunities to derive a greater level of assurance and minimise unnecessary duplication of work.
The Auditor General for Scotland is the External Auditor of a number of public bodies.
The Auditor General may appoint a member of the staff of Audit Scotland or an appropriately qualified professional firm as the auditor of your body. Where a public body is incorporated under the Companies Act, the auditor is appointed by the members of the company ( i.e. the Board members).
External Audit of the Annual Accounts
An External Audit of the annual accounts undertaken by the Auditor General is conducted in accordance with the Public Finance and Accountability (Scotland) Act 2000 and the Code of Audit Practice issued by Audit Scotland on behalf of the Auditor General.
On completion of the External Audit, the appointed auditor sends a copy of the accounts and the audit opinion to the Auditor General. The Auditor General may then add a report (for example, on a qualification of the auditor's opinion or other matter drawn to their attention by the auditor) before sponsored bodies send their accounts and reports to the Scottish Ministers for laying before the Parliament. Non-Ministerial bodies lay their accounts directly before the Parliament.
External Audit of the Annual Accounts
The appointed auditor will:
- Issue an opinion as to whether the accounts give a true and fair view of the state of affairs of the public body at the year end and of its income and expenditure for the year and whether the accounts have been prepared in accordance with any applicable legislation and accounts direction;
- Issue an opinion (known as the "regularity" opinion) as to whether the income and expenditure has been properly received or incurred in accordance with legislation, the Budget Act for the relevant year and any other guidance issued by the Scottish Ministers;
- Review the Governance Statement prepared by the body and report if it is not in accordance with the auditor's understanding of the body;
- Review the body's arrangements in relation to financial sustainability, financial management, governance and transparency and Value for Money;
- Consider the body's governance arrangements and arrangements for prevention and detection of fraud; and
- Provide reports to the Board, Audit Committee and/or management on matters arising during the course of the audit.
Performance audits look at the performance of a public body and include a Value for Money audit which is an examination of the economy, efficiency and effectiveness with which a body has used its resources to carry out its functions.
The Auditor General has powers to conduct performance audits. These audits examine the economy, efficiency and effectiveness of aspects of the public sector. They can assess:
- performance across several public bodies in a particular theme - for example, managing changes in the workforce; or
- performance of an individual public body or a particular aspect of that body's performance.
Performance audits may be conducted by Audit Scotland staff, the appointed auditor, consultants or any combination of these. A draft report on the audit will be discussed with the public body (or bodies) to ensure factual accuracy. Once finalised, the report will be laid before the Scottish Parliament and published with an accompanying news release. In most cases, the Auditor General will present the report to the Scottish Parliament's Public Audit and Post-legislative Scrutiny Committee. Performance audit reports may contain material such as checklists to assist non-executive Board members in holding management to account.
For many public bodies, the founding legislation provides that the Auditor General will appoint the auditor. In such circumstances, the Auditor General has a statutory right to carry out a Value for Money examination.
Where the Auditor General is not the auditor of a public body and has not appointed the auditor, they should have rights under statute or by agreement to carry out an inspection of the use of resources by those bodies.