Compliance with Contractual requirements
PSAA monitors firms’ compliance with contractual requirements by considering performance against a range of contract indicators and also their compliance with agreed method statements.
PSAA has not been required to take formal action against any firm in respect of non-compliance with contractual requirements in respect of 2019/20 engagements.
Contract performance indicators
During the year PSAA has reported publicly on firms’ performance against targets of particular interest to opted-in bodies. This has included information on delivery of audit opinions and other outputs in a timely manner and matters which facilitate publication of annual accounts.
The NAO Code of Audit Practice from 2020/21 onwards includes the expectation that the audit report containing the opinion will be issued by the publishing date set out in the Accounts and Audit Regulations 2015 (or equivalent) wherever the auditor can do so under the auditing standards and the guidance issued by the NAO. Established practice in local government is that if auditors are unable to issue an unqualified opinion at the publishing date, then they will delay issue rather than issuing a qualified opinion. Regulation 10(2) of the Accounts and Audit Regulations 2015 specifically provides for the circumstances where an audit of accounts has not been concluded before the specified publishing date with the requirement of the body to publish a notice reporting the delay and the reasons for it.
Auditors undertook the 2019/20 audits during a very difficult time for all concerned. The systemic issues highlighted by Sir Tony Redmond’s Review continued and were compounded by the pandemic. Auditors needed to perform additional audit procedures because of the resulting uncertainties, and to work remotely. These difficulties contributed further to the ongoing problem of timeliness of local government audit completion in England. Although the Government assisted the sector by moving the publishing date to 30 November it was disappointing that 264 (55%) opinions were not given by that date.
The concerns raised by this position were such that in March 2021 the NAO published the factual Timeliness of local auditor reporting on local government in England providing a summary of the causes and consequences of the delayed report. This was followed by a Public Accounts Committee inquiry and report.
Subsequently, the timeliness of opinions has continued to deteriorate. Only 9% of 2020/21 financial statement opinions were provided by the publishing date of 30 September 2021.
It is clear from correspondence and the information received from our client survey that timeliness is considered by our clients as a key element of receiving a good quality audit service. Delayed opinions disrupt related work plans for all parties, create uncertainty in relation to the organisation’s financial position, and weakened governance and accountability processes. Perhaps most obviously, delayed audited accounts are less valuable and relevant.
The causes of the delays are widely documented and covered by both the NAO report and PAC inquiry referred to earlier. Tackling the issues and reversing the current trend is a priority for the local audit system and its participants.
Specific Powers and Duties of Auditors
Auditors have specific powers and duties under the Local Audit and Accountability Act 2014 (the Act) in relation to matters of lawfulness including considering whether to issue a public interest report concerning any matter that comes to their attention during the course of the audit, which they judge should be considered by the audited body or brought to public attention; or considering whether an audited body should consider formally, and respond to in public to recommendations they are making (Schedule 7 of the Act).
The table below shows how auditors have used their specific powers in the period covered by this report.
Table 5: Use of auditors’ specific powers
Use of statutory powers by date of issue
| Period | Issued Public Interest Report under Sch 7 (1) | Made written recommendation under Sch 7 (2) |
| Year to October 2020 | 2 | 1 |
| Year to October 2021 | 2 | 6 |
| November 2021 to February 2022 | 1 | 2 |
Source: PSAA
Objections
Local electors have the right to raise formal objections with the auditor about the financial statements and other matters, a unique feature of local government audits.
We recognise that not all cases can be resolved within nine months (the historical industry benchmark), for example, where objections are related to complex or difficult legal cases, or where a resolution is delayed because an auditor is reliant on others for responses.
However the current shortage of experienced local auditors, which is particularly relevant for the exercise of an auditor’s quasi-juridical powers, has impacted on the ability of all firms to conclude on objections. As at 30 September 2021 there were 48 objections unresolved within a nine-month time frame.
The NAO’s 2020 Code of Practice requires auditors to use best endeavours to complete their work on objections within six months including informing the objector and the body of their decision. We welcome particularly the requirement that where this is not possible that electors and bodies will be provided with a progress update every three months until the objection is decided.
Non-compliance with Terms of Appointment
There have been no significant areas of non-compliance with PSAA’s Terms of Appointment (ToA) for the year ended 31 March 2021 (the period of work covered by this report). We reported two occasions during the year where firms were late in requesting extensions to individual’s involvement at specific engagements.
Independence issues
The ToA require firms to notify PSAA of any potential threats to their independence which may arise. We received six such notifications in relation to 2019/20 engagements. In all cases the matter was dealt with appropriately with relevant disclosures being made to the audit committees of the bodies concerned.
We reported one occasion where a firm self-reported that tax services had been inadvertently provided to a local authority subsidiary company. Appropriate action was taken to mitigate the risk to auditor independence and a change in auditor appointment was not necessary in this case.
Non-audit services
Firms are able to provide certain non-audit services to audited bodies subject to the requirements of the FRC’s Ethical Standard and the NAO’s Auditor Guidance Note 1. Where the fee for such services exceeds the higher of £18,000 or 20% of the scale fee then the firm must seek PSAA’s confirmation that undertaking such work will not compromise their independence as auditor. The requirement that local auditors provide a VFM arrangements conclusion is relevant to this judgement. The number of requests made has significantly reduced from earlier years because of changes to the Ethical Standard.
Table 6: Non-audit service requests
Number and value of non-audit service requests for the last three financial years.
| Year | Number of requests approved for non-audit services | Total fee value of requests approved |
| 2018/19 | 10 | £336,773 |
| 2019/20 | 5 | £203,550 |
| 2020/21 | 0 | £0 |
Source: PSAA
We have no concerns about how firms are operating their internal control systems for maintaining their independence.
Complaints
Complaints can be an indicator of poor quality audit services. Under our complaints policy PSAA can consider complaints that relate to a possible failure in service by one of the firms of appointed auditors, but we cannot consider complaints about the professional judgements and decisions made by auditors, or the process followed in relation to elector rights as these are matters for the courts. We have a protocol with the relevant regulators for dealing with such complaints.
In the year ended 31 March 2021 there were no complaints made to PSAA that were relevant to our responsibilities. We referred two complainants to the ICAEW as the appropriate regulatory body.
Method Statement
Certain parts of firms’ invitation to tender (ITT) responses in the 2017 PSAA procurement have been incorporated as ‘method statements’ in their contracts. The method statements cover a variety of topics that were all assessed as part of the tender evaluation process. PSAA has triangulated its monitoring of compliance with audit quality service information from other sources such as the professional regulatory reviews and client surveys. A client focussed version of the ‘method statement’ was provided to all bodies as part of our client survey and formed part of firms’ planning and reporting communications with audited bodies.
As audit is a highly regulated profession, much of the firms’ method statements is contained in the expectations of the auditing standards in planning, conducting and reporting on an audit. The results of the regulatory reviews are reported above.
The findings from our client survey were that on this narrow point broadly 90% of finance directors and audit committee chairs considered that allowing for the pandemic their audit service was meeting expectations as set out in their method statement to a greater or lesser extent. We report further on the results of the client survey below.
Data Confidentiality
We have reviewed and confirmed that firms’ data confidentiality arrangements remain appropriate. There have been no notifiable breaches of data confidentiality. The introduction of cloud-based data holding and two-factor authentication arrangements have done much to improve overall security.
Social Value
In accordance with our obligations under the Public Services (Social Value) Act 2012, we used the procurement undertaken in 2017 to seek to improve the economic, social and environmental well-being through the supply of audit services under our contract, whilst acknowledging that this is difficult to frame and measure in a national contact.
Our procurement required firms to specify how many apprenticeships, additional training, development and work experience opportunities would be provided as a result of the contract, and the measures that would be put in place to target these posts at people from more deprived communities. Across our five firms over 400 positions were committed to be provided across the life of the contract. Information provided by the firms shows that for the contract period to 2019/20, 243 (60%) positions have so far been created. These opportunities provide positions for graduate trainees, school leavers and include year-long work placements.
A particular focus for all firms has been school leaver programmes for those who have not followed the university entry route (which had been the traditional joining route). Information on backgrounds has been more challenging to validate but firms have provided details of the strategies deployed to widen their talent pool and ensure inclusive attraction in order to provide greater opportunities for young people from disadvantaged backgrounds. Whilst measurement of performance has been challenging, we are satisfied that our initiative has contributed to the encouragement of firms to address these important issues.