Audit Quality Monitoring Report

Adherence to Professional Standards and Guidance

31. In November 2024 the Financial Reporting Council (FRC) published its 2024 Report on the quality of major local audits. The scope of the report was constrained by the local audit backlog, and the FRC’s decision to suspend its inspections of routine local government audits to support system recovery. It provided the results of only a limited number (eight) of predominantly NHS audit inspections. The FRC reported that no audits inspected in 2023/24 required significant improvements and 75% of audits inspected required no more than limited improvement. 100% of auditors work on VFM arrangements was judged as requiring no more than limited improvements.
32. The report also contained the results of the Institute of Chartered Accountants in England and Wales (ICAEW) most recent inspections of four audits across two firms. These judged that all work across both financial audit and VFM arrangements was considered good or generally acceptable.
33. The FRC identified three themes for general improvement. These were the auditing of group accounting, the evaluation of uncorrected misstatements (including whether they are material by nature, and the use of substantive analytical procedures). They also highlighted good practice at individual audits on professional scepticism and challenge, the valuation of investment properties, oversight of component auditors, and VFM arrangements reporting in Auditors’ Annual Reports. The ICAEW identified good practice in the audit of property valuations.
34. Both organisations will continue to limit their inspections of local government audits to support firms during the period of local audit overhaul. In our response to MHCLG’s strategy consultation we called for inspections to cover all aspects of the audit work to deliver a Code of Audit Practice.  Just over 40% of the 535 local government, police authority and related pension fund audits are classified as Major Local Audits within the FRC’s inspection regime. The remainder are covered by the ICAEW.

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