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 following our consultation on the 2024/25 fee scale. The final 2024/25 fee scale is published on our website. The fee scale includes 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 required for audits from 2022/23. We were unable to factor additional fees into the 2023/24 fee scale because we did not have a sufficient evidence base on the work needed at the time we were required to set the fee scale, but we did signal that additional work would be needed. Fee variations will apply for 2023/24 audits, and the additional fees for 2024/25 provide a guideline.
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 pursuing 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. 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, now in place, to update the Accounts and Audit Regulations and implement a new Code of Audit Practice. The actions involve 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. A further announcement is expected on wider changes to the local audit system to address the factors that have contributed to the backlog.
The backlog actions may have an impact on audit fees for 2023/24 audits. We are working on quantifying the fees and related costs of disclaimed audits 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.