Additional information for 2021/22 audit fees

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The fee variations process

It is important that bodies are well informed about how our fee variations process works. We have therefore set out in this section a description of the process to help avoid any misunderstandings.

PSAA sets the fee scale annually and publishes the scale fee for each individual audited body. If the auditor subsequently finds that substantial additional work is required that is not provided for in the scale fee for an individual body, the auditor can propose a fee variation to PSAA. This is set out in the statutory framework for audit fees and variations, in the Local Audit (Appointing Person) Regulations 2015. Regulation 17(2) provides for the auditor to propose to PSAA (as the Appointing Person) that fees should be varied where the work involved in a particular audit is substantially more than envisaged by the appropriate scale. The same applies if the required work reduces – for example if the body no longer needs to produce group accounts.

Fee variation submission

The reasons for submitting fee variation proposals vary, but typical examples include:

  • increased regulator challenge on audit quality resulting in the need for additional work to provide greater assurance on areas such as property, plant and equipment valuations and pension valuations;
  • technical accounting issues;
  • group accounts;
  • the auditor has received an objection from an elector; and
  • the working papers to support the annual accounts were of a poorer quality than in previous years.

Auditors are obliged to have local discussions with individual opted-in bodies about any proposed fee variations. These discussions should take place at the earliest opportunity, and wherever possible the auditors should highlight at the planning stage any additional work which is likely to be required during the audit, including potential fee implications. While it may not be possible to quantify the proposed fee until the work is done, early discussion can help to avoid misunderstandings at a later stage.

PSAA provides standard fee variation forms for the audit firms to complete cyclically. Auditors are required to:

  1. state the date the fee variation was agreed with the audited body (or record that it has not been agreed);
  2. state the date the fee variation was reported to those charged with governance;
  3. confirm whether a fee variation proposal includes recurring additional work;
  4. provide narrative/documents to support and explain the fee variation proposal, including why the work was needed and what work was undertaken; and
  5. provide the amount of auditor time required for the additional work undertaken.

Review process

PSAA reviews the fee variation proposals submitted, including some or all of the following as applicable:

  1. confirming that the fee variation form has been completed correctly;
  2. considering the value of the fee variation and its size relative to other similar fee variations;
  3. comparing the size of the fee variation to the scale fee to consider whether it is proportionate;
  4. reviewing the justification (including any supporting workings/documents) provided by the firm to support the fee variation proposal and assessing whether the complexity of the issue and the challenges described are in proportion to the fee variation submitted;
  5. checking that the work performed meets the requirements as set down in regulations for a fee variation, for example, it is work required under the Code of Audit  Practice;
  6. confirming that the work detailed in the firm’s justification is consistent with PSAA’s other records, for example, a delay in the issue of an accounts opinion, statement of reasons issued;
  7. exercising judgement when considering the grade mix used and hours taken (for example, do they appear reasonable);
  8. considering any specific outputs resulting from the additional work undertaken;
  9. checking whether the audited body has agreed the fee variation proposal. In the case of claims that are not agreed, we contact the audited body (where possible, the Section 151 Officer) to hear the body’s concerns so that we can take them into consideration when we make the fee determination;
  10. checking that the relevant issues raised in the firm’s justification have been reported to those charged with governance (for example in the ISA260 report or Annual Audit Letter);
  11. checking that the appropriate fee variation value is reported in the Audit Plan / ISA260 / Annual Audit Letter;
  12. for high value fee variations the following is also undertaken:
    • a PSAA officer will contact the body (normally s151 officer or Director of Finance) to discuss the variation;
    • PSAA officers may have a meeting with the firm’s audit team and perform a review of the audit file to obtain a better understanding of the additional work; and
  13. reviewing whether any approved fee variation is one-off or recurring, to assess whether it relates to additional audit work that will be repeated in future audits (for example, pension fund valuations, PPE valuations, group accounts, increased challenge on audit quality). Where we are satisfied that the fee variation is recurring we will aim to include it in the scale fee at the earliest opportunity, which is determined in accordance with the Appointing Person regulations.

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