Separating Internal Scrutiny from External Audit Providers

Many Academy Trusts are finding their external auditors writing to them advising they are ...

Many Academy Trusts are finding their external auditors writing to them advising they are not longer able to offer internal audit services.

We have had a number of calls from Trusts worried about the impact this will have on them.  In fact as we have been discussing with Trusts, this should be a positive impact and should build strength into the Trusts systems for oversight. The reason for the shift in external auditors no longer offering these services is due the Academies Financial Handbook interpreting existing auditing standards.  The  Handbook published in 2019 under part 3 3.20

Trusts should note that the Financial Reporting Council's revised Ethical Standard states that a firm providing external audit to an entity shall not also provide internal audit services to it. The Standard includes transitional arrangements which permit existing audit engagements at 15 March 2020 to conclude.”

Academies Financial Handbook 

Many Audit firms have taken the decision to not offer both services to the same client to ensure compliance with the ethical standards.  

Introducing another professional to provide the internal scrutiny service can bring additional support to your Trust:

  • A focussed service line as opposed to a package where responsibility and loyalties are spread
  • An extra professional resource and support to have in your team increasing your ability to get the right information and the best into your systems
  • Increased integrity with no compromise of familiarity
  • A light competition to keep both internal scrutiny provider and external auditor on their toes can often be a good thing – and you may find some increase in added value commentary

The separation of other services provided from external audit firms is going to continue as a result of the 2019 Brydon report.  There have been some high profile cases of failures in entities which has lead to a lack of trust and integrity of the Audit process.  Whilst this has been an issue with the big 4 Audit firms the lessons and onward revision to audit standards and processes will be relevant for all auditor professionals.  

Therefore it seems even more of an incentive to get things right now for Academy Trusts which are public facing.

At Infinitas we have been working with the Education and Charity Sector for 20 years and are working with Trusts in their task of separation of External and Internal audit services ensuring the confidence of the Trusts financial team is maintained as this working relations is crucial in the oversight process.  

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