November 2023
Summary
This publication sets out the 2023/24 scale of audit fees payable by local bodies that have opted into PSAA’s appointing person scheme. Our statutory consultation on the fee scale took place between September and October 2023.
There is currently a local audit system-wide discussion taking place about the timetable for the audit work for 2023/24 and earlier years for which audit opinions are currently outstanding, but there has been no announcement on the way forward at the time of writing.
The 2023/24 audits are the first in the second five-year appointing period specified by PSAA, covering 2023/24 to 2027/28. PSAA awarded new contracts for this period in 2022 to six audit firms, following a challenging and protracted procurement. The procurement demonstrated clearly the limited audit capacity available to meet the demands of the local government audit market. The procurement outcome is an increase of 151% on total fees for local audit work.
Our consultation explained the difficulties of setting the fee scale at a time of significant change in the local audit system. These included that the audit profession has been subject to high levels of scrutiny in recent years following several widely reported financial failures in the private sector, and that there is a major backlog in completing local audits. In July 2023 the Department for Levelling Up, Housing and Communities (DLUHC) announced proposals to address the backlog, and is working with all stakeholders to tackle the complex issues involved.
PSAA is required under the local audit regulations to consult on and set the 2023/24 fee scale before 1 December 2023. As proposals to address the audit backlog are still under consideration, we cannot reflect the impact of potential changes on the fee scale. We therefore consulted on the basis of existing audit requirements. Once any changes are confirmed, we will assess the impact on fees and provide updated information to opted-in bodies.
Our consultation on the fee scale set out the proposed approach to calculating the fees for 2023/24 audits, ensuring that scale fees are as fully and consistently updated as possible. The calculation is based on:
- the scale fee for the previous year (2022/23), as the starting point;
- adding in fees for any changes in the audit work now needed, replacing the need for fee variations where possible; and
- taking the total of the previous scale fee plus the additional work needed (a plus b) and applying the procurement adjustment of 151% for the new contract rates for audit firms.
PSAA is very much aware of the significant financial pressures on all local government bodies and understands that any further cost pressure is unwelcome. The level at which we are setting the 2023/24 fee scale is largely determined by two factors which PSAA does not control: the volume of audit work required to deliver audits compliant with the requirements of the Code of Audit Practice, and audit supply market rates.
Responses to the consultation were mostly supportive of the proposed approach to setting the 2023/24 fee scale, with 70% (89 replies) confirming they agree with our proposals and 30% (39 replies) who do not. Most responses do raise issues or concerns, particularly about the financial impact of the fee increase on opted-in bodies and the audit service bodies feel they are receiving.
We are grateful for all the responses to the consultation, which have provided very helpful feedback on our proposals and the concerns of stakeholders. The PSAA Board has reflected on the consultation outcome and takes very seriously all the points made.
The PSAA Board has decided to set the 2023/24 fee scale as proposed in the consultation, having taken into account all feedback.
We understand the concerns raised in consultation responses. Many of the issues are complex and PSAA does not control the factors involved, for example the scope of local audit work. We have published a set of questions and answers about the fee scale consultation on our website which provide more information.
We have highlighted the need for urgent action to reform the local audit system in England, in response to the pressures and market fragility of recent years. We have publicly stated our view that radical changes are needed to achieve a more proportionate and timely audit and a more sustainable audit system. We will continue in our determination to seek action on these issues with government and key stakeholders and to highlight the concerns expressed in the consultation.