Frequently Asked Questions

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  1. What are the differences between PSAA’s scheme for the audits of 2023/24 to 2027/28 and its scheme for 2018/19 to 2022/23?

    Below are some of the key differences in the approach for the procurement of audit services completed in 2022 compared to the 2017 procurement.

    Feedback on the proposed approach was sought from all eligible bodies, and current and prospective suppliers during June 2021.

    1. We expressed a preference to enter into new long-term contracts at the earliest opportunity rather than extending current contracts.
    2. Tender evaluations were assessed with quality/price weightings of 80:20 (previously 50:50).
    3. Tenderers were able to specify geographical areas which they were least able to cover. They would receive an enhanced rate (an uplift of 30% of their bid rate) if they were appointed to audits within those areas.
    4. In May 2022, PSAA established a DPS to enable future mini-procurements and to help mitigate against suppliers being “locked out” of the market for long periods.
    5. Future contract extensions are subject to mutual agreement rather than at the sole discretion of PSAA.
    6. The procurement was divided into 13 Lots to provide firms with greater choice and more flexibility to seek a share of the market to match their capacity and risk appetite, and to hopefully deliver contracts with an increased number of firms.
    7. We provided clarity and certainty in relation to responsibility for and handling of changes to regulatory requirements so that firms were able to bid with confidence.
    8. We applied a simplified formula in relation to inflation which will apply from year 2 of the contract onwards.
    9. We included several initiatives to allow new suppliers to enter the market, including enabling experienced suppliers to be assisted by new entrants.
    10. We produced and shared a risk allocation matrix with the market. This was designed to help us and suppliers to consider carefully and systematically the key risks which could have arisen from and/or affected the contracts, so there was greater clarity about the risks that did/did not need to be priced into bids.

  2. What arrangements are in place to ensure GDPR compliance in the audit contracts?

    Once appointed, an audit firm has a statutory relationship with the audited body. Our contracts require audit firms to comply with the requirements of all relevant legislation, including on data protection. The contracts are commercially confidential and are a matter between PSAA and each firm.

  3. What audit fees apply under the audit contracts from April 2023?

    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.

  4. What can I expect from PSAA once an auditor appointment has been made?

    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.

  5. What has the market told you about what is needed to deliver sustainability and how do PSAA encourage small audit firms to enter the 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.

  6. What is an appointing person and which bodies are eligible to opt in?

    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.

  7. What is PSAA doing alongside other local audit stakeholders to help design and implement a system which is more stable, more resilient, and more sustainable?

    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.

  8. What is the mechanism for allocating the cost of individual audit firm bids?

    The mechanism for allocating the costs of individual firm bids is the scale fee, which allocates the total costs of all firms’ tenders and PSAA total costs (approximately 2%) in a proportionate way across all bodies.

    The scale fee does not vary in relation to which firm is appointed as auditor. Contingencies are not built into the fees and where additional audit work is required after the scale fee has been set, this results in a fee variation in line with the statutory framework. These may result in a permanent adjustment to the scale fee (for example group accounts are now required) or maybe for a single year only (for example a change of a key financial system). The scale fee is linked to the relative risk and cost of a particular body’s audit.

  9. What is the process for making auditor appointments for the appointing period?

    PSAA has a duty to make appointments to all bodies that opt into the schemes. We have published our approach to auditor appointments for the two five-year appointing periods from 2023/24 to 2027/28 and from 2018/19 to 2022/23.

    When we make auditor appointments we consider any formal joint working or shared service arrangements where these are relevant to the auditor’s responsibilities. Providing there are no independence considerations or other constraints, we will look to appoint the same firm as for another opted-in body where this is requested. Auditors must be independent of the bodies they audit, as required by the Ethical Standards issued by the Financial Reporting Council and in accordance with PSAA’s obligations under the Regulations.

    If you have a specific enquiry about either of the appointing period schemes, please contact us at generalenquiries@psaa.co.uk.

  10. What is the process to feed in opinions of current auditors if there are issues?

    PSAA has a clear process for managing complaints, which sets out those areas that it covers. It does not cover matters of professional judgement. We have a Memorandum of Understanding with professional regulators (The Institute of Chartered Accountants England and Wales (ICAEW) as the Recognised Supervisory Body (RSB) and the Financial Reporting Council (FRC)), such that complaints are dealt with by the most appropriate body.

    PSAA undertakes contract monitoring of the firms it appoints. Each year PSAA carries out an annual survey that is designed to obtain views from opted-in bodies on the delivery of their audit. This forms part of its engagement with the sector as the feedback received informs discussions with the firms, DLUHC, the FRC, the NAO, the LGA, CIPFA, ICAEW and other key stakeholders involved in local audit in England.