Issued in draft on 12 September 2024 (to be updated in November 2024)
Summary
This briefing provides information on the expected impact on audit fees of changes in local audit requirements for 2023/24 audits. We are making this information available to support local discussions between opted-in bodies and auditors about fee variations for 2023/24 audits.
We are publishing the briefing in draft at the same time as our 2024/25 fee scale consultation. The consultation includes proposed additional fees for new audit work on revised auditing standard ISA (UK) 315 (risks of material misstatement) and linked work on ISA (UK) 240 (fraud). This additional work is also relevant for 2023/24 audits. We were unable to factor additional fees into the 2023/24 fee scale but we did signal that additional work would be needed. Fee variations will apply for 2023/24 audits, and the proposed 2024/25 fees provide a guideline, subject to the outcome of the fee scale consultation.
Our strong view is that work on reforming accounting and auditing frameworks must reduce the volume of local audit work needed to deliver a more proportionate Code of Audit Practice (Code) compliant audit. We have welcomed the actions MHCLG is proposing to address the deeply concerning level of delayed local audit opinions and expressed our strong support for the Government’s commitment to overhaul the local audit system to enable bodies and taxpayers to get better value for money.
This remains an uncertain time for the local audit system. The Ministry of Housing, Communities and Local Government (MHCLG) published a statement in July 2024 setting out the immediate action to be taken with the Financial Reporting Council (FRC), the National Audit Office (NAO) and in the wider system to address the unprecedented backlog of audit opinions and to put local audit onto a more sustainable footing. The actions require secondary legislation expected to be in place soon. They include a backstop to clear outstanding unaudited accounts up to and including financial year 2022/23 (with disclaimed audit opinions if necessary) and a series of further backstops to enable the system to recover.
The backlog actions may have an impact on audit fees for 2023/24 audits. We will assess this when guidance is confirmed and will provide further information as soon as we can. The MHCLG statement sets out the broad principles on audit fees. In summary these are that fees for audit work undertaken in good faith must be paid by the body, including where there is a modified or disclaimed opinion, but that fees collected for work that has not been undertaken will be returned. PSAA will track and control all aspects of the fees process.
We will publish a final version of this briefing in November 2024 following our consultation on the 2024/25 fee scale.