March 2020
Executive Summary
- This document formally sets the scale of fees for 2020/21 audits payable by local bodies that have opted into PSAA’s appointing person scheme, and sets out the current issues that PSAA has taken into account.
- This scale fee setting process has been complicated by the current huge pressures on the audit profession. Many of the challenges which the profession is facing are linked to significant concerns arising from a series of widely reported financial failures in the private sector. The local audit system has already been impacted by these developments and is likely to continue to be so until a more stable audit environment is re-established.
- Government and stakeholders are at present digesting major reviews of audit by Sir John Kingman, the Competition and Markets Authority and Sir Donald Brydon. In the meantime, there remains significant uncertainty about the nature and extent of any resulting changes to be taken forward. In addition to the implications arising from these reviews, local audit will also be impacted by any changes resulting from Sir Tony Redmond’s review of local government financial reporting and audit which is expected to conclude later this year.
- In the short term, further developments are taking place in response to the coronavirus emergency. For example, IFRS 16 implementation has been deferred for a year and moves are afoot to vary the CIPFA/LASAAC Accounting Code requirements and to change the accounts and audit timetable.
- Against this unprecedented backcloth, PSAA is carrying out various pieces of research to provide a detailed and up to date understanding of the local government audit market and help secure the long-term sustainability of audit supply. This includes surveying every audited body on their 2018/19 audit experience, assessing the current and potential local audit supply market, and examining the current costs of delivering Code of Audit Practice compliant audits.
- Many anticipated changes, including imminent developments such as the new Code of Audit Practice requirements, will clearly affect all bodies. However, the scale of their impact is likely to vary depending on local circumstances and arrangements.
- Despite all the uncertainty, PSAA must honour its statutory requirement to set the 2020/21 scale of fees before the start of the financial year, well ahead not only of the detailed audit work on 2020/21 itself but also the vast bulk of the work on 2019/20. In current circumstances we do not have sufficient reliable information that would enable us to adjust the scale of fees for 2020/21, and so have maintained the scale fee at the level set for 2019/20 before audit work had started. In practice we recognise that in the event, with so much turbulence and change in the environment, additional fees variations are likely to arise for many bodies.
- In this context we believe that there is a compelling need for auditors and bodies to engage systematically with one another, to discuss and review key change factors and their implications for the body’s risk profile and audit work. These discussions may include whether one-off or longer-term fee variations or adjustments may be appropriate, all of which would be subject to PSAA’s procedures that are designed to meet our statutory duties, including that we review all proposed variations and that no fee variation can by charged without our approval.
- This kind of engagement between the auditor and audited body is good practice, and is even more important in times of uncertainty when both sides are subject to such significant ongoing pressures.