Compliance with Contractual requirements
- PSAA monitors firms’ compliance with contractual requirements by considering a range of performance indicators, and also their compliance with agreed method statements as set out below.
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 auditors’ use of additional powers to issue Public Interest Reports and determine objections at audit bought by local electors.
- The 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. However, the publishing date is not a statutory date, and currently there is no ‘backstop’ date by which auditors must issue an opinion (this is a matter on which the Government is currently consulting). Established practice in local government has been that if auditors are unable to issue an opinion at the publishing date, then they will continue their audit until they judge they are able to do so. Regulation 10(2) of the Accounts and Audit Regulations 2015 specifically provides for the circumstances where audited statements are not available before the specified publishing date, in that the body must publish a notice reporting the delay and the reasons for it.
- The overall backlog of delayed audits continued to increase during 2023 whilst the sector worked on a solution that would remove the backlog, and also prevent its recurrence, returning to a position where a timely audit is the norm rather than the exception. The background to the delays and potential solutions has been widely covered by the initial report of Sir Tony Redmond, reports by the National Audit Office, and the work and Reports of the Public Accounts Committee and the Levelling Up, Housing and Communities Committee, together with Departmental and Ministerial Statements.
- At the publishing date of 30 September 2023, five (1%) of local government bodies’ 2022/23 audit opinions have been given. By 31 December 2023 this figure had risen to 45 (10%). In total the number of outstanding opinions at 31 December 2023 is 771. As referenced earlier consultations have commenced to tackle the backlog and prevent its recurrence.
Specific Powers and Duties of Auditors
- Auditors have specific powers and duties under the Local Audit and Accountability Act 2014 (the Act). These include 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;
- an audited body should consider formally and respond in public to recommendations they are making (Schedule 7 of the Act); and
- to apply to the court that an item of account is contrary to law.
- 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 |
| Year to October 2022 | 1 | 4 |
| Year to October 2023 | 2 | 6 |
| November to December 2023 | 0 | 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.
- It is widely recognised 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 likely impacted on the ability of firms to conclude on objections. At 31 December 2023 there were 30 objections unresolved within a nine-month time frame, including a number unresolved for significantly longer periods.
- The 2020 Code of Audit 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 supported the 2020 Code of Practice’s introduction of a requirement that where this is not possible, the auditor must provide the objectors and bodies with a progress update every three months until the objection is decided. This has been built into our contract monitoring arrangements for future audit years.
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 2023 (the period of work covered by this report). On one occasion a firm did not provide a copy of a statutory report to PSAA in advance of issue as required.
Independence issues
- We have no matters to report in respect of the year ended 31 March 2023 or the period to 31 December 2023.
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 commentary 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 five 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 |
| 2021/22 | 3 | £185,500 |
| 2022/23 | 1 | £56,500 |
| To December 2023 | 1 | £68,365 |
Source: PSAA
- We monitor how firms are operating their internal control systems for maintaining their independence. Should an incident occur, we have reviewed the underlying cause and the mitigating actions that have been put in place to prevent re
–occurrence.
Complaints
- Complaints can be an indicator of poor-quality audit services. Under our complaints policy PSAA can consider complaints that relate to maladministration by one of our supplier firms, 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.
- A number of opted-in bodies contacted us regarding the lack of timeliness in audit completion. We share the concerns of our clients. As we and others have reported previously, the reasons at any individual body will normally be a combination of different causes. The position in 2022/23 was exacerbated by the length of time taken by the system to resolve concerns over the accounting for (and therefore the auditing of) authorities’ infrastructure assets (e.g. highways) together with the impact of an extended post-balance sheet period encompassing updates to triennial pension valuations which required consideration.
- In the year ended 31 March 2023 we partially upheld one formal complaint made to PSAA that was relevant to our responsibilities. This was in respect of the timeliness of a response to a question to the auditor. In addition, we referred one complainant to the ICAEW as the appropriate regulatory body.
Method Statement
- Certain parts of the 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 focused version of the ‘method statement’ was provided to all bodies as part of our client survey and formed part of the firms’ planning and reporting communications with audited bodies.
- As audit is a highly regulated profession, much of the firms’ method statements are 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 58% of responding finance directors and 72% Audit Committee Chairs considered that their audit service was meeting expectations as set out in firms’ audit planning documentation “to some extent”. This feedback reflects the impact of the backlog across the entire sector. We report further on the results of the client survey below.
Data Confidentiality
- We have reviewed and confirmed that all firms have information governance arrangements in place and data confidentiality arrangements remain appropriate. In the year ended 31 March 2023 one specific data incident, a laptop theft, was reported to us. Our assessment of the incident in conjunction with the firm concerned concluded that there were no notifiable breaches of personal data confidentiality. The introduction of cloud-based data holding, and multi-factor authentication arrangements have done much to improve overall security and confidentiality arrangements. There must be no complacency however as technology continues to evolve at a fast pace and can be prone to basic human error.
Social Value
- In accordance with our obligations under the Public Services (Social Value) Act 2012, we used the 2017 procurement to seek to improve 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 context.
- 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 toward people from more deprived communities. Our five contracted firms committed to providing 400 positions across the life of the contract. Information provided by the firms shows that for the contract period to 2021/22, over 320 positions have so far been created in positions for graduate trainees and school leavers, including year-long work placements. In addition, there have been a further 160 fixed-term placements.
- A particular focus for all firms has been school leaver programmes and attracting employees from lower socio-economic backgrounds. Information on backgrounds is difficult 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 continues to be challenging, we are confident that our initiative has contributed to the encouragement of firms to address these important issues and has produced the numbers of posts envisaged at the outset.