Frequently Asked Questions

Our current arrangements for measuring the quality of the delivery of audit services are published. Our approach to tender evaluation for the 2022 audit services procurement reflected those areas which opted-in bodies told us are important to them. We sought input from the FRC in developing our approach. The themes and their weightings are as follows:

• Approach – including the transition between audit firms (10%)
• Audit delivery – quality assurance and capability (25%)
• Audit delivery – resourcing and capacity (20%)
• Communication (20%)
• Social value (5%)

Please note that it is the FRC that assesses the quality of the firms’ audit work in line with its statutory responsibilities.

A decision to become an opted-in body must be taken in accordance with the Regulations that is by the members of an authority meeting as a whole, except where the authority is a corporation sole, such as a police and crime commissioner, in which case this decision can be taken by the holder of that office.

The requirement for the Full Council of an authority to make the decision to opt into the PSAA (appointing person) scheme is set out in section 19 of the Local Audit (Appointing Person) Regulations 2015. It is not a matter that is under PSAA’s control.

The opportunity for existing eligible bodies to become an opted-in authority for the appointing period 2023/24 to 2027/28, closed on 11 March 2022. General details about the process for the first two appointing periods can be found at appointing period 2018/19 – 2022/23 or appointing period 2023/24 – 2027/28.

The procurement of audit services for opted-in bodies is a key component of the appointing person arrangements.

Ahead of each audit services procurement PSAA develops and publishes a procurement strategy that is shaped by market conditions and the views of eligible bodies and local audit stakeholders.

Details of PSAA’s previous audit procurements are published on its website: the outcome of its procurement in 2022 for the appointing period 2023/24 to 2027/28, and the outcome of its procurement in 2017 for the appointing period 2018/19 to 2022/23.

There are no direct repercussions for the audited body, but we recognise the problems that delayed audits cause.

The Accounts and Audit Regulations 2015 set out the requirements for publishing accounts. There is a statutory deadline for the publication of audited financial statements, but this is only applicable when the body has audited accounts to publish. As a result, Reg 10(2) provides that where an audit of accounts has not been concluded by the specified publishing date then an authority must publish a notice stating that it has not been possible to publish the statement of accounts and its reasons for this. The wording of the notice is at the discretion of the authority.

We work with firms to improve matters where service has fallen short, but our contractual options are limited. Our aim is to get to a position where we can replace auditors who do not meet the quality measures within our contracts and are not able to resolve the issues. However, this would require a more buoyant market of local audit suppliers than is the case in 2023.

The FRC’s Ethical Standard precludes contracts that contain fees that vary according to a pre-determined measure (for example specifying a date by which an audit opinion must be given). We robustly scrutinise firms’ proposed fee variations for additional work in line with our published process. This includes discussions with individual bodies before making determinations.

All relevant authorities listed in schedule 2 of the Local Audit and Accountability Act 2014 (the Act), whether they have opted in or not, are required to comply with Part 3 of the Act in relation to the appointment of local auditors.

Section 7 of the Act requires a relevant authority to appoint a local auditor to audit its accounts for a financial year not later than 31 December in the preceding financial year. For the 2023/24 accounts, a local auditor must have been appointed by 31 December 2022.

Eligible bodies that have chosen not to opt into the appointing person arrangements have two options for appointing their own auditor. These are to:

• undertake an individual auditor procurement and appointment exercise; or
• undertake a joint audit procurement and appointing exercise with other bodies.

Both these options require the body to consult and consider the advice of its Auditor Panel on the selection and appointment of a local auditor. Section 9 of the Act requires the establishment of an Auditor Panel, section 10 sets out the functions of an Auditor Panel, and schedule 4 sets out provisions applying to Auditor Panels. An Auditor Panel must consist of a majority of independent members (or wholly of independent members), and must be chaired by an independent member.

A guide to Auditor Panels for local government authorities was issued by CIPFA in 2017.

Within the period of 28 days beginning with the day on which the auditor appointment is made, section 8 of the Act requires a body that has not opted into the national appointing person arrangements to publish a notice that:

1. states that it has made the appointment;
2. identifies the local auditor that has been appointed;
3. specifies the period for which the local auditor has been appointed;
4. sets out the advice, or a summary of the advice, of its Auditor Panel about the selection and appointment of a local auditor; and
5. if it has not followed that advice, sets out the reasons why it has not done so.

The notice must be published on its website or in such manner as the body thinks is likely to bring the notice to the attention of service users.

The terms of the contract through which an auditor is appointed by local arrangements will determine how the service is provided and the remuneration arrangements.

The Ethical Standard issued by the FRC in December 2019 [due to be replaced with the Revised Ethical Standard 2024 by the end of 2024] precludes contingent fees on audit engagements. A contingent fee basis includes any arrangement made at the outset of an engagement under which a specified commission on, or percentage of, any consideration or saving is payable to the firm upon the happening of a specified event or the achievement of an outcome (or alternative outcomes).

Whether an auditor is appointed by PSAA or by local arrangements, the specification of a local audit is fixed. It is determined by the requirements of the:

• NAO’s Code of Audit Practice which sets the scope of the audit;
• Code of Practice on Local Authority Accounting published by CIPFA/LASSAC which sets the format of the financial statements;
• HM Treasury in respect of the arrangements for Whole of Government Accounts; and
• FRC who regulate the work of the auditor in the application of International Auditing Standards.

The framework of the Appointing Person scheme is the relevant legislation, namely the Local Audit and Accountability Act, the Appointing Person Regulations, and Accounts and Audit Regulations.

Local authority group accounts are part of the accounts produced under the CIPFA Code of Practice on Local Authority Accounting and are subject to audit in line with the NAO Code of Audit Practice. They continue to be part of the statutory audit for which PSAA makes an auditor appointment for opted-in bodies.

Local authority companies are not listed in the Local Audit and Accountability Act as bodies subject to audit under that act. Company audits are subject to the provisions of the Companies Act 2006 and are not covered by the Local Audit (Appointing Person) Regulations 2015 or the scope of PSAA’s specification as the appointing person.

Local authority companies must appoint an auditor themselves in accordance with Companies Act legislation. They can appoint the same audit firm as PSAA appoints to undertake the principal body audit should they wish, for example where this could support an efficient audit process.

The historical requirement to obtain approval for the auditor appointment to a company under the Local Authorities (Companies) Order 1995 no longer applies. The appointment of the company auditor is a matter for the local authority’s governance arrangements, informed by any guidance that CIPFA has produced.

There are numerous very significant hurdles to creating a public sector auditor and addressing them is not in PSAA’s gift.

There are only nine firms in England registered to undertake local audit and three of these firms did not bid. Unlike other parts of the UK, in England there is no auditor of last resort (or in-house provision), so we are wholly reliant on the market. We are calling for urgent change to move the local audit system to a more sustainable footing which may allow greater confidence and optimism as we approach the next procurement in five years’ time.

We have made public statements that the local audit market is failing, and we are actively calling for reform in response to the challenges that local audit is facing including:

• Bringing local audit back on track – Room 151
• Moving towards sound financial management – The MJ