Frequently Asked Questions

Issues with the timeliness of audit opinion delivery are caused by a variety of factors. In common with all stakeholders in the local audit system, we want to see the earliest possible return to a position in which virtually all local bodies can publish their audited accounts by the target date specified in the Accounts and Audit Regulations.

There are several significant obstacles which need to be overcome before that goal can be realised. They include:

• a backlog of delayed prior year audit opinions which are still outstanding;
• a shortage of audit staff with the requisite skills and experience;
• more demanding regulatory requirements which increase the time and resources needed to complete each audit; and
• local bodies entering more frequently into innovative transactions which require detailed examination by auditors, and capacity shortages in finance and other staff to deal with the volume and complexity of local government accounts.

In January 2023, the NAO published a progress update on the timeliness of local auditor reporting in England. This was an update on their original report issued in March 2021.

The 2020 NAO Code of Audit Practice requires auditors to report on a timely basis, clearly, concisely, and objectively without fear or favour. Timely reporting includes producing audit reports in time, insofar as the auditor can do so under auditing standards, to allow local bodies to comply with the requirements placed on them to publish their audited financial statements.

We have amended our expectation of firms within the 2021 Terms of Appointment. This states that where in the auditor’s view it would not be possible to issue an audit report in compliance with the auditing standards and the guidance issued by the NAO by the publishing date, the audited body must be consulted on an alternative target date. The auditor must notify the audited body promptly of any delays to the agreed timetable, and reissue the timetable having regard to those delays after further consultation.

The local audit system working together as a whole is the most effective way to drive the timely delivery of audits. It is important to recognise that any improvements will take time to materialise given the nature of retrospective audits and the significant number of delayed audits. There are no easy solutions which we or any other parties can simply action. The reality is that returning to a more predictable and stable position is going to take some time and will be a gradual process. Our e-bulletins provide updates on developments across the local audit system to seek to address the well-documented challenges.

Technical audit quality is a measure for the FRC as regulator. The 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 monitor the quality of audit services using a package of measures. We work with firms to improve matters where service has been poor, 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, the current shortage makes this very challenging, and is another reason for wanting to strengthen the supplier options available to us in the future.

Our audit contracts from 2023/24 contain a range of new provisions designed to improve service delivery which are summarised below, as per our webinar in March 2022 in which we explained the new features of the contract.

We are currently developing the practical arrangements for contract monitoring aligned to these strengthened provisions.

The measures in the new contract include:

• Firms will be paid when they deliver four predefined audit milestones (each attracting 25% of the scale fee), rather than on a routine quarterly basis unlinked to on the ground delivery:
  • for audit year 2023/24 where the Supplier has not been the Appointed Auditor for the previous audit year not earlier than 1 October 2023, otherwise on the production of the auditor’s annual report for the previous audit year
  • production of the draft audit planning report to the audited body
  • 50% of the supplier’s planned hours in respect of the audited body have been completed
  • 75% of the supplier’s planned hours in respect of the audited body have been completed
• We have introduced KPIs linked to the audit delivery lifecycle and a quarterly contract monitoring review process
• There is a Review Procedure through which we can require a supplier at its own cost to amend its method statement, if the current one does not satisfy their obligations under the contract
• There is a Rectification Plan process which we may invoke if:
  • the supplier fails to comply with its method statement obligations and materially impacts delivery;
  • there is a supplier delay or is reasonably likely to be a delay;
  • the supplier fails to achieve any KPI measure; and/or
  • commits a default that has or may have an adverse effect on the provision of the Services.
• Once agreed by us, the Rectification Plan creates a supplier obligation to implement it, including rectification of past failures.

The fact remains that as now, our statutory sanction of being able to remove auditors from appointments (e.g. for performance or other issues) is largely moot as there is no surplus in the local audit market. As referenced in our press release, we had to go through several procurement stages to get enough capacity to make the appointments which is far from ideal, this would be a surplus of supply and increased competition. In this context neither we nor the system can offer any guarantees on service delivery as our contract management framework is undermined by this capacity issue. What we can guarantee is that PSAA will do all we can to help the system tackle the issues. DLUHC has publicly stated that local audit will take years to fix, and no single action will solve it.

The introduction of IFRS was a government decision in 2007 ‘to improve consistency and comparability’ and ‘to follow private sector best practice’. CIPFA recognises how complicated accounts have become and DLUHC has committed to looking at what can be done to make them more accessible.

Please note that the implementation of IFRS16 has been delayed until 2024, following the CIPFA/LASAAC emergency consultation in March 2022.

Auditors are required to deliver an audit that complies with the NAO Code of Audit Practice, and PSAA’s contracts are let on this basis. Regulation 17(2) of the Local Audit (Appointing Person) Regulations 2015 states that where it appears to PSAA (as the appointing person) that the work involved in a particular audit was substantially more than that envisaged by the scale fee, then a larger fee may be charged.

PSAA has a robust process for reviewing and approving fee variations involving consultation with the audited body, and reviews of firms’ work programmes and audit files to assess proposals for additional fees submitted by auditors.

Public Sector Audit Appointments Limited (PSAA) is an independent company limited by guarantee incorporated by the Local Government Association in August 2014.

In July 2016, the Secretary of State specified PSAA as an appointing person for principal local government and police bodies for audits from 2018/19, under the provisions of the Local Audit and Accountability Act 2014 and the Local Audit (Appointing Person) Regulations 2015. Acting in accordance with this role PSAA is responsible for appointing an auditor and setting scales of fees for relevant principal authorities that have chosen to opt into its national scheme.

PSAA is staffed by a team with significant experience working within the context of the Regulations to appoint auditors, manage contracts with audit firms, and set and determine audit fees. All these roles are undertaken with a detailed, ongoing, and up-to-date understanding of the distinctive context of a highly regulated service and profession which is subject to dynamic pressures for change.

Find out more in the about us section of this website.

As at March 2023, the nine registered firms are: Azets Audit Services, BDO, Bishop Fleming, Deloitte, EY, Grant Thornton, KPMG, Mazars and PWC.

The ICAEW maintain the list of registered auditors.

The evaluation ratio of 80% quality and 20% price for an audit services procurement is consistent with other recently let public sector audit procurement contracts. It differs from our approach to the 2017 procurement as our market intelligence was that firms would not engage with bodies that did not value audit and used ratios of a low quality/high price rating.

We considered the feedback provided and confirmed our approach to retain the 80% quality and 20% price evaluation ratio in the report summarising the outcome of the June 2021 consultation on the draft prospectus.

The independence requirements for all auditors in the local public audit regime are the same, whether locally appointed or part of the appointing person regime. These requirements are specified by the Financial Reporting Council in the Ethical Standard and applied to local public audit as determined by the NAO.

The services that an auditor can provide are the same whether appointed by PSAA or through local arrangements.

As the Appointing Person, PSAA performs the role otherwise required of an Independent Auditor Panel to advise the body on ensuring the independence of the auditor (Local Audit and Accountability Act 2014 section 10(1)).