Additional information
Fee variations process
The nature of audit is such that it may be necessary for an auditor to carry out more audit work than has previously been required or was planned. PSAA has the power to vary the audit fee payable by an opted-in body where it considers substantially more or less audit work was required than envisaged by the scale fee. Where it becomes clear that audit risk or complexity is significantly different from the level identified and reflected in the scale fee, or audit requirements have increased, the auditor may request a fee variation.
Fee variation requests must be made to PSAA by the auditor using a standard process. We encourage discussions between the auditor and the body to take place as early as possible in the audit cycle, and ideally for the auditor to obtain agreement from the body to the proposed variation before seeking approval. However, irrespective of whether the proposed variation has or has not been agreed by the body concerned, we scrutinise every proposal and are responsible for the ultimate determination of every variation. The fee variation is not payable by the opted-in body until PSAA has approved the request.
We regularly obtain updated fee information on proposed variations from the scale fee from appointed auditors and consider the reasonableness of the explanations provided. For example, fee variations relating to Code changes, regulatory changes or inadequate working papers are potentially valid (subject to individual circumstances and the body’s observations).
Fees are also chargeable when auditors carry out work in line with their other responsibilities, such as considering information provided by third parties, objections or carrying out other investigations.
Further information on the fee variations process is available on our website.
Statement of responsibilities
The statement of responsibilities of auditors and audited bodies sets out the expectations on which scale fees are based. The statement effectively represents the terms of engagement between appointed auditors and audited bodies and summarises their respective responsibilities.
Scale fees are based on the expectation that audited bodies can provide the auditor with complete and materially accurate financial statements and supporting working papers within agreed timeframes. Where a body is unable to fulfil these requirements, local fee variations may be required.
Additional audit costs that arise due to auditors not meeting expectations, for example where members of the audit team are inadequately prepared or where changes in audit teams lead to repeated questions, are ineligible for a fee variation.
New contract management arrangements
Once appointed, auditors exercise their responsibilities independently under local audit legislation and the professional framework, and PSAA does not have the ability to penalise audit firms or direct the way they work. The audit contracts with the firms reflect the requirements of the Local Audit and Accountability Act 2014 and the Appointing Person Regulations (2015) and are very different to a typical services contract in relation to any sanctions PSAA could apply.
However, where possible we have made some positive changes to contract management provisions in the audit services contracts applicable from 2023/24 to reflect the changed local audit market and in view of feedback from opted-in bodies.
Our audit firms are contractually obliged to deliver the audits in accordance with the method statements outlined in their tender responses. Where this does not occur, we have mechanisms we can use to support performance improvement. These measures include:
- firms will be paid when they deliver on four predefined audit milestones (each attracting 25% of the scale fee), rather than on the basis of four quarterly payments as previously;
- we have introduced KPIs linked to the audit delivery cycle and a quarterly contract monitoring review process;
- there is a review procedure through which we can require a supplier at their own cost to amend its method statement, if it becomes clear that the current one does not satisfy its obligations under the contract; and
- there is a rectification plan process which we may invoke if the supplier fails to comply with its obligations under the contract.
We will revisit the milestones and KPIs if a backlog solution changes the framework.
We also recognise that while we have strengthened the contract provisions to reflect changes in local audit, the ultimate sanction of being able to remove auditors from appointments remains largely theoretical as there is no surplus capacity in the local audit market.
Invoicing
Under the audit contracts applicable from 2023/24 audits, we have introduced payment milestones linked to audit delivery. In contrast to the previous contracts, where the auditor invoiced the body each quarter irrespective of delivery progress, the new contracts have four predefined audit milestones, (each attracting 25% of the scale fee), at which point it is permissible for an audit firm to invoice an audited body. The four milestones are:
- production of the final auditor’s annual report for the previous audit year (exception for new clients in 2023/24 only, where the auditor can invoice the body no earlier than 1 October 2023);
- production of the draft audit planning report to the audited body;
- 50% of planned hours of an audit have been completed; and
- 75% of planned hours of an audit have been completed.
The reason for the difference in the first instalment in some cases is to avoid penalising a newly appointed firm because of a delayed audit from a predecessor firm. The second, third and fourth instalment milestones are all directly linked to the delivery of the audit.
Contracted audit firms collect fees from opted-in bodies as agents of PSAA.
Value added tax
Individual audit fees under the 2022/23 fee scale do not include value added tax (VAT), which will be charged at the prevailing rate, currently 20 per cent, on all work done.
Enquiries
If you have questions about this fee scale please send them to us by email to: workandfeesconsultation@psaa.co.uk.