Frequently Asked Questions

Firms and key audit partners must be registered with the ICAEW to provide local audit services, in accordance with the Local Audit and Accountability Act 2014. The quality of the firms’ work will be subject to scrutiny by both the ICAEW and the Financial Reporting Council (FRC). The FRC and the ICAEW have their own enforcement procedures where an audit does not meet the regulators’ quality standards.

PSAA will monitor that firms maintain the appropriate registration.

The Ethical Standard issued by the FRC precludes contingent fees. 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).

PSAA’s audit contracts cover an NAO Code of Audit Practice audit of opted-in bodies only. PSAA has no power under the Local Audit and Accountability Act 2014 or the Regulations to make arrangements or appointments for assurance on grant claims and returns.

PSAA…

• is the Government’s choice to run this vital national scheme
• has a specialist, experienced team who will use their expertise and sector knowledge to make transparent and independent auditor appointments
• aims to procure an audit service of the required quality at a realistic market price and support the drive towards a long-term competitive and more sustainable market for local audit
• is very familiar working with the complexities of the evolving local audit framework and regulations when managing contracts with audit firms, and setting and determining audit fees
• is a not-for-profit organisation whose costs are around 2% of the total scheme costs. Any surplus is distributed back to scheme members
• independently assesses proposed fee variations, authorising billing only when satisfied that the proposal is justified and in line with the requirements of the statutory regulations
• is an active member of the Local Audit Liaison Committee, chaired by the FRC and attended by key local audit stakeholders. This enables us to feed in body and audit perspectives to decisions about changes to the local audit framework, and the need to address timeliness through actions across the system
• conducts research to raise awareness of local audit issues, and works with DLUHC and other stakeholders to enable changes arising from Sir Tony Redmond’s Review, such as more flexible fee setting and a timelier basis to set scale fees
• issues e-bulletins that provide updates on developments across the local audit system to seek to address the well-documented challenges

Joining the scheme…

• is we believe the best option for securing the appointment of a qualified, registered auditor in the current challenging market, where there are only ten registered suppliers (as at February 2024)
• avoids the need to undertake an auditor procurement and ongoing contract management activities (e.g. fee variation management), saving local time, effort and cost. This includes removing the need to establish an Auditor Panel with an independent chair to oversee a local procurement and contract management
• is the most efficient solution for the sector. A collective procurement is much less time-consuming for bodies and for auditors than a multiplicity of local, smaller procurements
• gives you free access to our Local Audit Quality Forum events on key topics

And finally, please note that…

• the scope of local audit is fixed, as it is defined by statute and by accounting and auditing codes. It would be the same under any local procurement as under PSAA’s procurement
• some typical services contract levers such as penalties for late delivery cannot be applied to an audit services contract, as fees calculated based on a specified outcome (e.g. specific date completions) are classified as contingent fees, not allowed under the FRC’s Ethical Standard

For further information please contact generalenquiries@psaa.co.uk.

The bid rates submitted in response to PSAA’s 2022 audit services procurement, covering the audits of 2023/24 to 2027/28, reflected a significant increase compared to our previous procurement in 2017. The audit industry has faced major challenges in the intervening period. In addition, local audit faces several distinctive difficulties which have resulted in a less competitive market.

The 2022 procurement outcome required a major re-set of total audit fees for the contract period from 2023/24, resulting in a projected increase of 151% on the fees for 2022/23. The actual total audit fee at any individual body is the scale fee set each year plus any fee variations for additional national or local audit requirements, and so it is variable.

In September 2023 PSAA consulted on the proposed scale of audit fees payable by bodies in respect of the audit of 2023/24 accounts. The consultation set out the additional elements to be included in the scale fees for individual opted-in bodies, including additional audit requirements and the adjustment of 151% for the procurement outcome.

In consulting on the fee scale each year, we consider the factors which may influence the audit work needed. This may include changes in audit requirements, for example revised auditing or financial reporting standards. If the volume of work changes, then the total fee will vary accordingly. For example, if a national or local factor triggers an increase or decrease in the volume of audit work then the fee will vary accordingly. For audits from 2024/25 the audit contracts also require us to consider changes in inflation.

We appreciate that an increase in audit fees poses a significant funding challenge for local bodies already facing a daunting range of financial pressures. We have raised this concern with DLUHC.

PSAA will provide effective management of the contracts with appointed audit firms.

Details of our contract management arrangements are on our website and in these FAQs under the topic ‘Contract Management’.

We will meet regularly with the public sector leads at each contracted firm and ensure that matters concerning opted-in bodies are brought to their attention.

In addition, PSAA will:

• robustly assess and validate every fee variation proposal;
• work closely with DLUHC and other key stakeholders to identify ways to address the concerns about fees expressed by the Redmond Review;
• invite the S151 Officer and Audit Committee Chair (or equivalents) to participate in Local Audit Quality Forum events (or similar e.g. webinars) on relevant topics, which are free of charge to opted-in bodies;
• undertake research on technical developments related to local audit;
• attend meetings of the various treasurers’ societies and S151 officer meetings to share updates on our work, discuss audit-related developments, and listen to feedback; and
• maintain contact with those registered audit firms that are not currently contracted with us, to build relationships and understand their thinking on working within the local audit market.

In 2020 PSAA commissioned independent research from Touchstone Renard to review the sustainability of the local government audit market.

During the summer of 2021 we considered the feedback provided by the market and confirmed our approach to support the drive towards a more sustainable market for local public audit services. We summarised the outcome of the market engagement in a report that we published in autumn 2021.

Our procurement strategy 2022 supported the drive towards a long term competitive and more sustainable market for local public audit services and recognised the need to encourage new entrants alongside existing suppliers. For example, we created different sized contract lots to reflect the range of capacity available within different firms.

Public Sector Audit Appointments Limited (PSAA) has been specified as an appointing person under the Local Audit and Accountability Act 2014 and the Local Audit (Appointing Person) Regulations 2015. It has had the power to make auditor appointments for audits of the accounts from 2018/19 onwards on behalf of eligible principal local government bodies that opt in.

Eligible bodies are those in the principal local government body types listed in schedule 2 of the Local Audit and Accountability Act 2014 with annual income or expenditure in excess of £6.5m. This includes county councils, district councils, London borough councils, unitary authorities, metropolitan councils, local police bodies, fire and rescue authorities, combined authorities (covering elected regional mayors), national park authorities, conservation boards, passenger transport executives, waste authorities, functional bodies, and other specified bodies.

Authorities with income and expenditure of less than £6.5m (such as parish councils) are smaller authorities and do not require a full audit. Smaller authorities can choose to be treated as full audit authorities in which case they are eligible to opt in as principal authorities.

NHS bodies are not eligible to opt into our scheme.

The list of the local government bodies opted into the 2018 appointing person scheme is available.

The list of the local government bodies opted into the 2023 appointing person scheme is available.

We continue to work closely with a range of local audit stakeholders including DLUHC, the FRC, the NAO, CIPFA, ICAEW and the LGA to help identify and develop further initiatives to strengthen the local audit. Our e-bulletins provide details of recent developments.

We know that there is a long way to go before something approaching a complete whole-system solution is crafted which must involve more local auditors and/or less audit work – preferably both. PSAA is ready to do everything we can as part of a collective systemwide effort to deliver the critical changes required.

Since 2018 PSAA has taken several initiatives to support improvements in local audit including:

• proactively and constructively engaging with the numerous high-profile industry reviews, including the significant Redmond Review into Local Authority Financial Reporting and External Audit;
• commissioning an independent review undertaken by Cardiff Business School of the design and implementation of our appointing person role to help shape our thinking about future arrangements;
• commissioning an independent review by consultancy firm Touchstone Renard of the sustainability of the local government audit market, which identified a number of distinctive challenges in the current local audit market. We published the report to inform debate and support ongoing work to strengthen the system and help to deliver long term sustainability;
• working with DLUHC to identify ways to address concerns about fees by developing a new approach to fee variations. This would seek wherever possible to determine additional fees at a national level where changes in audit work apply to all or most opted-in bodies;
• establishing of a Local Audit Quality Forum, which holds in-person events and webinars that are free for opted-in bodies to discuss relevant topics;
• using our Advisory Panel and attending meetings of the various Treasurers’ Societies and S151 officer meetings to share updates on our work, discuss audit-related developments, and listen to feedback;
• maintaining contact with those registered audit firms that are not currently contracted with us, to build relationships and understand their thinking on working within the local audit market;
• undertaking research to enable a better understanding of the outcomes of electors’ objections and statements of reasons; and
• sharing our experiences with, and learning from, other organisations that commission local audit services such as Audit Scotland, the NAO, and Crown Commercial Services.