PSAA takes very seriously the Financial Reporting Council (FRC)’s report on its inspection of major local audits (MLA) in 2018/19. PSAA agrees with the FRC’s statement that high quality audit is essential to maintain stakeholder confidence by providing an independent, impartial view of an MLA body’s financial statements and arrangements in place to secure value for money.
The FRC reviewed the audits of 15 of the 271 bodies that meet the MLA definition, 12 from local government and 3 from the NHS, focusing in particular on audits with ‘higher risk attributes’. The report sets out that 9 of them did not meet the required standard in relation to the audit of the financial statements, and that, accordingly, urgent action is required of the relevant firms to address the issues.
The FRC highlights that the quality of audit work on property valuations continues to be the greatest concern, and that all firms must focus on improvement, some of them urgently. Other areas of concern include the audit evidence for debtor balances, the audit response to fraud risks relating to journals and expenditure, the Engagement Quality Control review process, auditing estimates, and the audit of pension fund assets.
PSAA will follow up the results and resulting action plans with the relevant firms to get assurance that the FRC’s concerns are being actively addressed.
More positively, the FRC’s reviews found that the quality of VFM arrangements conclusion work across all firms remains high, with all 15 reviews meeting the standard. The report also highlights areas of good practice.
The report references the findings of both the ICAEW reviews of audits of bodies that do not meet the MLA definition, and the firms’ Internal Quality Monitoring (IQM) reviews of audits. The ICAEW found that 11 of the 12 financial statement audits that they reviewed met the required standard, along with all of the associated vfm arrangements work. The IQM results were that 9 of the 12 met the required standard.