The 2024/25 fee scale
Introduction
The Local Audit (Appointing Person) Regulations 2015 and the Local Audit (Appointing Person) (Amendment) Regulations 2022 require that PSAA, as an appointing person, must specify the scale or scales of fees for the audit of the accounts of opted-in authorities before 1 December of the financial year to which the scale of fees relates.
We consult in September so that our fee proposals are based on the latest information available and to provide opted-in bodies with their proposed fees for budget planning.
We expect that our 2024/25 fee scale consultation will run in parallel with MHCLG’s actions to implement measures to address the audit backlog. MHCLG’s July statement sets out the Government’s intention to lay secondary legislation to support the backlog measures. The Comptroller and Auditor General will publish a new Code of Audit Practice by April 2025 and may also issue separate guidance endorsed by the FRC on audit work under the backlog measures. Total 2024/25 audit fees for a body (scale fee plus fee variations) will depend on the audit work required under the backlog measures and the circumstances of each opted-in body.
We will assess the impact on audit fees when guidance is available and will provide further information as soon as we can. The MHCLG statement sets out the principles for audit fees:
- if auditors have worked in good faith to meet the requirements of the Code of Audit Practice in place at the time the work was conducted (and have reported on work that is no longer required), then they are due the appropriate fee for the work done, and the body is due to pay the applicable fee, including where there is a modified or disclaimed opinion; and
- if an auditor has collected audit fees in part or in full, and the backstop date means that the total work done represents less than the fee already collected, then the auditor must return the balance and refund the body the appropriate amount.
We set the fee scale each year based on the income we require to meet our own and the audit contract costs. Periodically we return any surplus to opted-in bodies by means of a distribution or reduction in future fees, once it is clear the surplus is no longer needed to discharge our responsibilities.
2024/25 fee scale elements
We propose that the 2024/25 fee scale should include the following elements:
A. The scale fees set for 2023/24
PLUS:
B. Additional fees for changes in audit requirements (revised ISA 315 and linked work on ISA 240) using standard fees for differing body types
C. Adjustments for specific opted-in bodies, where updated information is now available
D. A contractual adjustment of 3.4% for inflation
Further information on each element is provided below
A. The scale fees set for 2023/24
We use the previous year’s scale fees as the starting point for the next year and then consider any necessary adjustments.
B. Changes in audit requirements (revised ISA 315 and linked work on ISA 240)
Audit requirements have grown in recent years due to increased regulatory challenge on audit quality, updated auditing and financial reporting standards, and the move to a VFM arrangements commentary, with an impact on audit fees. If a change is substantial and we can reliably estimate the additional fees, we will incorporate them into a fee scale.
We commission external independent technical research each year to contribute to our work on understanding the impact on audit fees of changes to the Code and financial reporting standards. From a complete list of expected changes, the research focuses detailed work on those requirements that have a significant impact on audit work and fees. The results of this work are included in the autumn information paper we publish each year to support fee discussions between opted-in bodies and auditors.
We have determined the additional fees to consolidate into the 2024/25 fee scale for revised ISA (UK) 315 (risks of material misstatement) and the related impact of ISA (UK) 240 (fraud). We are proposing standard fees for groups of bodies, as provided for in local audit regulations. The table below provides a list of the additional fees:
Additional standard fees to be consolidated for work on ISA 315 and 240
| Body type | Standard fee |
|---|---|
| Metropolitan district council, London borough, unitary authority, county council | £15,690 |
| District council | £9,410 |
| Police and Crime Commissioner | £4,710 |
| Chief Constable | £4,710 |
| Fire authority | £7,058 |
| Pension fund audit | £7,840 |
The proposed additional standard fees are based on the extra work required, approved fee variations for the first year of application (2022/23), and discussions with our contracted firms and public audit providers. The standard fees are equivalent to an average increase of 5% in total 2024/25 scale fees for all opted-in bodies. We only include additional fees in the fee scale when we have reliable information on the actual impact of a change in audit requirements. The fee scale does not include a contingency element, as this would mean opted-in bodies paying more than is necessary for their auditor to deliver a Code-compliant audit in years when additional requirements do not apply.
In a small number of exceptional cases where there are significant elevated risks, we are proposing higher additional fees based on the estimated additional work needed. We will review these cases once 2024/25 audit work has been completed and may adjust where needed in the next fee scale.
We have proposed the additional fees for 2024/25 on the basis that we will only consider subsequent requests from auditors for further fee variations for this category of work in exceptional cases.
The research considered other changes in audit requirements applicable for the first time for 2024/25, including IFRS 16 (Leasing) and ISA (UK) 600 (group financial statements). We concluded that we are unable to consolidate additional fees into the fee scale at this point as the fees for individual bodies will be highly dependent on a body’s arrangements and the level of work required. We will need to evaluate the viability of incorporating additional fees in a future fee scale once we have enough information.
C. Adjustments for specific opted-in bodies
The impact of delayed audit completions has meant that information to set the fee scale has not been complete, and in some cases has been missing for multiple years. Where the need for additional or reduced recurrent work is now clear from approved fee variations, we need to update scale fees. This has the benefit of providing clarity on expected fees before audit work is undertaken and reduces the need for ongoing fee variations.
We have considered information available since we published the 2023/24 fee scale in November 2023 and have identified 130 audits (24%) where fee increases or reductions are required for recurrent audit work.
We have also reviewed the bodies we identified as special cases when we set the 2023/24 fee scale and considered whether the additional fee adjustment remains appropriate. We have identified a small number of additional special cases from 2024/25.
D. Adjustment for inflation
Our audit contracts provide for a 3.4% inflationary increase for 2024/25 audits, based on the ONS annual CPI rate published prior to 1 April 2024. The increase applies to 2024/25 scale fees and the hourly rates for additional work submitted as fee variations.
2024/25 additional fee hourly rates
| Partner/ Director | Senior Manager /Manager | Senior Auditor | Other Staff | |
|---|---|---|---|---|
| 2024/25 audits | £428 | £236 | £153 | £117 |
Summary of proposal
In summary, we propose that the fee scale for 2024/25 will be built up as follows:
| 2024/25 fee scale: proposed elements |
|---|
| A – The scale fees for 2023/24 Plus: B – Fees for significant changes in audit requirements (ISA 315 and related ISA 240 requirements), using standard fees based on body type C – Adjustments for specific opted-in bodies D – Adjustment for inflation |
We will write to each opted-in body during the consultation period setting out their expected scale fee based on these elements. The example below illustrates how the scale fee will be made up:
Calculation example – 2024/25 scale fees
| Example (unitary council) | |
|---|---|
| 1) 2023/24 scale fee | £313,800 |
| 2) Add: changes in audit requirements – new requirements of ISA (UK) 315 (risks of material misstatement) and related work on ISA (UK) 240 (fraud), not included in the fee scale | £15,690 |
| 3) Add/remove: changes in ongoing fee variations (specific bodies only, not applicable to all audits) | £3,452 |
| 4) Subtotal 2023/24 scale fees plus recurring additional fees | £332,942 |
| 5) Contractual indexation (3.4% of subtotal) | £11,320 |
| Total scale fee for 2024/25 | £344,262 |