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Choosing an external auditor for your Academy Trust
Background
Schools, specifically their governing bodies, have control over the spending of their budgets. This
relies on sound procurement and governance practices, in order to gain maximum benefit for the
school and its pupils, and for maintaining compliance with governance obligations.
Differences between maintained and academy schools
Financial monitoring of maintained schools is the responsibility of local authorities (LAs), and LAs
audit the schools within their remit. Academy trusts, however, fall under the control of central
government but must have processes in place to check financial processes, systems and risks, and
the checks should be made by an independent auditor. The requirement for this is outlined in the
Academies Financial Handbook. Academies also have different requirements to maintained schools
around VAT and tax payments, and Multiple Academy Trusts (MATs) are required to have a
separate audit committee. Financial statements are prepared for 31 August each year.
What does the auditor do, and what do they want to know?
The auditor will carry out a series of tests which are designed to enable them to form an opinion on
whether the financial statements are free from error. These tests are beyond simple box ticking and
are not there first and foremost to find fraud; rather, the auditors want to know that the school is
operating against its budget plans, and that this is within a reasonable level of error.
Auditors do not seek to certify that the financial statements are 100% correct, and therefore use the
concept of “materiality”. Materiality is the level at which auditors decide whether or not an error
discovered within the financial statements requires adjustment. If the auditor has chosen to
calculate materiality at 1% of the Trust’s total incoming resources; a Trust which has income
totalling £1 million will have a materiality level of £10,000. If the auditor discovers an error of
£8,000, then generally this error will be deemed “immaterial” and no adjustment will be required.
However, materiality is a matter of the auditor’s professional judgement, and therefore there may be
instances when the auditor discovers an immaterial error, but due to the sensitive nature of the
transaction, they feel that the immaterial error needs to be corrected.
Auditors will feel assured if the school can show the understanding of financial processes, and issues,
and that cash-flow and risk registers are up-to-date. Having reconciliations and any monthly
checklists completed and ready to show the auditor will also help. Much of the work for an SBM will
be in the preparation prior to the auditor’s arrival.
For academies, the external auditor must perform a number of engagements as part of the assurance
process for the Education Funding Agency (EFA). These are:
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‘True and fair’ audit of the financial statements
Regularity audit on the financial statements
Accountants report to the accounts return
As such it is important to devote time to ensuring you have the right auditor for your purposes.
Ultimately this will be something that you as a SBM will be involved in.
The remainder of this factsheet provides information and tips about finding and choosing an auditor
for your school, and provides a sample document (see Annex) for when your school is tendering for
an external auditor.
How to find an auditor
Word of mouth
It might be worth talking to SBM colleagues to find out who they would recommend. Other SBMs
will be employing the services of an auditor and may be able to make suggestions. Worth of mouth
is very beneficial as you will be aware of the first hand experiences of other SBMs and audit firms.
Internet searches
Audit firms promote themselves online so it may be worth searching under ‘academy auditors’ on an
internet search engine.
Register of Statutory Auditors
You can source an auditor from the Register of Statutory Auditors: http://www.auditregister.co.uk/.
The Register lists both statutory auditors and auditing firms in the UK, and you can search by
individual, firm, area or recognised supervisory body (RSB), for example the Association of
Chartered Certified Accountants (ACCA).
Procuring an auditor through a framework.
Academies can choose to procure an auditor through a framework which can make the process
much easier. The Crescent Purchasing Consortium offers a number of frameworks which can be
found on the following website: http://www.thecpc.ac.uk/
Note that membership to the purchasing consortium will be required. This can be gained by
registering, which is free of charge, on the CPC website.
Choosing the right auditor/ evaluating the work of an auditor
Before an academy looks to appoint auditors they should first address a series of considerations
which will help identify their audit needs.
Table 1: Choosing the right auditor
Points to discuss
Size and complexity of the academy trust
Is the trust a single academy trust or multi academy
trust? Are there any nuances within the trust e.g. PFI
constraints?
Local or national firm
Would a local or national firm suit the needs of the
academy trust better? Does the trust have a wide
geographical spread which a national firm would be
better placed to advise?
Additional services required
Comments
In addition to the external audit are any of the
following services needed:
Management accounts
Payroll preparation
Accounts preparation
Tax advice
Business strategy and financial planning
Conflicts of interest
These should be identified at the beginning of the
process and documented as required
Entering discussions with auditors - checklist
When should I look for an auditor and how many tenders?
Ideally you should look for an auditor as soon as possible after conversion. The FMGS return does
ask whether an external auditor has been appointed.
It is up to the trust how many audit firms they wish to tender with. As a rule of thumb 3 is a good
amount, however you may wish to send a number of invitations to tender out and only invite a
couple to interview/present. It all depends on the information the auditor has provided and whether
you think they would be a good fit for your academy trust.
The checklist below is not exhaustive, however it should give academies a starting point to enter
into discussions with potential auditors:
Table 2: What to ask potential auditors
Questions to ask potential auditors
Experience of academy sector
Does the firm currently audit/have any experience of auditing
Academy Trusts?
Market presence
Does the audit firm have a good reputation? Has the firm
established itself as reliable and knowledgeable, particularly within
the academy sector?
Capacity to take on new clients
Can the firm effectively support the academy if they have an
already large portfolio of academy clients?
Level of support
Will the firm be able to offer a sufficient level of support to the
academy, both during the audit and throughout the year? The
Comments
Questions to ask potential auditors
Comments
academy should be able to utilise the expertise of the auditors for
any ad-hoc accounting queries. Subject to the
complexity/frequency of the queries, this support should be free of
charge.
Clear fee structure
The fees should be clearly outlined, stating what services are
included and which services are excluded, and also what
circumstances would give rise to additional fees being charged.
Levels of staff involved
Which individuals will make up the audit team and what is their
level of expertise? It would be beneficial to have someone on the
audit team who has experience of the academy sector.
The academy should expect the auditors to carry out a proportion
of their work on-site at the academy. How big will this team be?
What will be the experience of this team?
Sample management letter
This is a letter which is provided to the Academy Trust at the end
of the audit. It details the procedures that the audit firm followed
and any significant issues/areas of weakness in the academy’s
controls processes which the audit firm has identified. These
documents are designed to help the academy improve its financial
controls and processes and therefore it should be presented
clearly and have enough sufficient detail to be of benefit to the
academy.
Sample audit plan
This document is provided to the Academy Trust prior to the
commencement of the audit. It should provide an overview of the
work which will be performed, areas of risk identified within the
financial statements, details of the audit team, fees that will be
charged (plus any reasons for increasing these), and sector
updates that the Trust needs to be aware of. In addition to this,
some audit firms will provide a “deliverables list” which provides
the academy with a list of documents which the audit team
requires in order to complete the audit.
How often do you need to change auditors?
As academy trusts’ are smaller companies, there are no set rules as to how often you change
auditors. The main thing is to ensure you get the best auditor for your needs who will understand
you school and help develop strategy and increase your confidence in preparing accounts. As such,
when evaluating the audit process, it is worth asking yourselves the following questions:
Table 3: Audit evaluation questions
Evaluation questions
How was the audit process?
Comments
Did the process run smoothly? If there were issues, were
they the result of miscommunications between the
auditor and yourselves?
Auditor understanding
Did the auditor take time to understand the needs of the
trust? Have they taken time to explain any issues when
they have arisen? Did they cater for our needs?
Value for Money
Was the audit cost reasonable? Were there unexpected
costs and were any of these as a result of the Trust not
preparing schedules and the accounts as arranged?
Audit team
Did the firm send out very junior members of the team?
Was the partner engaged in the process and did they
take time to attend the governors meeting?
Resources
Academies Financial Handbook
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/363753/Academies_Fin
ancial_Handbook2014.pdf
Financial Reporting Council – Audit tenders notes on best practice
https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/Audit-Tenders-Notes-onbest-practice.pdf
James Cowper – audit tendering documents
http://www.jamescowperkreston.co.uk/main.asp?contentID=529
PKF Littlejohn – Academy schools selecting an auditor
http://www.pkf-littlejohn.com/media/documents/Academy_schools_-_selecting_an_auditor.pdf
Annex: Template letter for inviting auditors to tender for the appointment of an
auditor
NB This template is an example from a group of schools that later converted to a MAT
Date
School contact details
Dear xxx
RE: Appointment of external auditors
I am writing to invite you to tender for the appointment of auditor to the newly converting
Academies listed below.
Name of
school and
contact details
Estimated
annual
turnover
Number of
accounts/
companies
Planned
conversion
date
(particularly
important to
have valuation
of assets
undertaken)
Finance
package
selection
Additional
assistance
required in
the first
year of
trading
Say amount
to be
audited
e.g. Main
budget
Add date
Company
/ package
Please see
bullet points
below
School Fund
Formula
Capital
Place here any notes required by the auditors (see example below)
Please note: all primary schools are converting in partnership with (name of school). (Name of
school) will be hosting the finance software which each school will access remotely and assisting in
the production of the annual accounts, therefore being the point of contact. However, each
school will be its own limited company.
In order to assist you, I have set out below some outline details:
 The Academies require an external auditor to audit the financial statements in accordance
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with the Companies Act and the Charities Commission requirements. In addition the
Academies require an opinion on whether:
o The financial statements have been prepared in accordance with the Financial
Reporting and Annual Accounts Requirements issued by the Department for
Education.
o The Academy has kept proper accounting records throughout the year.
o Grants made by the Department for Education have been applied for the purpose
intended.
The Academies also have to appoint a Responsible Officer and I would appreciate your
views on whether your firm could carry out these duties.
The Academies would consider firms with experience of auditing charities or similar
bodies and knowledge of the education sector would be an advantage.
The financial year for academies is 1st September to 31st August. Draft accounts will be
available for audit by 31st October each year. Audit approval is required by 30th
November for approval by the Trustees in December. Accounts must be submitted to the
relevant bodies by 31st December.
As this will be the first year of the additional reporting requirements to Companies House
(previously a return was only made to the Local Authority), your advice and support
would be welcome. Please advise to what extent you can assist.
Each Academy would need to receive advice on the transfer (and valuation) of assets and
appropriate depreciation rates.
The appointment of external auditors is for one year, renewable at the discretion of the
Board of Trustees. A formal reassessment of external auditors will take place at least
every 5 years.
Form of Proposal
Your proposal should be in writing and I would expect that it will not exceed ten pages in length.
The following should be included:
 Fee level for current year.
 An estimation of fee level for subsequent years’ audits.
 An indication as to how you will deal with costs incurred in your initial review and set-up
work.
 CV’s for key audit personnel.
 A statement as to which office will service the Academy and how you will keep travel
related costs to manageable levels.
 Background of the experience of your firm and your proposed audit executives in the
educational/charitable sector.
 A summary of the key reasons why governors should appoint your firm.
All tenders should be returned by (say your required date for return).
Yours sincerely
Name
School Business Director