This consultation closed on 10 October 2024.
Summary
This consultation invites comments on PSAA’s proposals for setting the fee scale for 2024/25 audits of opted-in bodies.
We are required under local audit regulations to consult on and set the 2024/25 fee scale by the end of November 2024. Audit work under this fee scale is likely from March 2025 to February 2026 under the dates proposed in a statement on the local audit backlog published by the Ministry of Housing, Communities and Local Government (MHCLG) in July 2024.
In summary, our 2024/25 fee scale proposals include a 9.5% increase on the 2023/24 scale fees to cover the additional audit work required under revised standards, and a contractual inflationary increase payable to audit firms for 2024/25.
The new audit work relates to revised auditing standard ISA (UK) 315 (risks of material misstatement) and linked work on ISA (UK) 240 (fraud). We are also proposing to update the scale fees for 130 (24%) 2024/25 audits where there are confirmed changes in ongoing audit work since we set current scale fees. Incorporating fee increases into scale fees provides more certainty and without this consolidation such changes would be payable as fee variations.
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.
We recognise the significant financial and wider pressures on opted-in bodies and understand that additional audit fees are an unwelcome additional budgetary pressure, but the specific changes in audit requirements in our fee scale proposal require substantial additional audit work. Our information paper for 2023/24 audits identifies the impact of changes in standards and provides information on how opted-in bodies and auditors can work together to mitigate the amount of additional audit work needed.
The Government has acknowledged that the local audit system is broken, evidenced by the backlog. MHCLG’s statement above sets out the immediate action to be taken with the Financial Reporting Council (FRC), the National Audit Office (NAO) and the wider system to address the backlog and put local audit onto a more sustainable footing. A letter to local government bodies also emphasises the importance of the planned actions, which 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 actions needed to resolve the backlog require secondary legislation, expected to be in place soon.
The need to clear the backlog with widespread disclaimed audit opinions is a painful reminder of the consequences of the broken local audit system. We are also acutely aware of the fundamental need for a fully functioning supply market that will provide options for alternative auditor appointments when needed, and competition for future contracts.
More detail on the 2024/25 fee scale proposals is set out in the next section of this consultation. We are running a webinar for opted-in bodies on Tuesday 1 October from 1pm to 2.30pm to support the consultation (covered in Next Steps section).
Our Board will consider consultation responses carefully before publishing the final 2024/25 fee scale on our website by 30 November 2024.