This consultation opened on 7 September 2023 and closed on 10 October 2023.
This consultation invites audited bodies and other stakeholders to submit views on PSAA’s proposals for setting the fee scale for the 2023/24 audits. At this stage, it is expected that audit work under this fee scale will largely be undertaken from autumn 2024 onwards. However, there is currently a local audit system-wide discussion taking place about the possible timetable for the audit work for 2023/24 and earlier years for which audit opinions are currently outstanding.
The 2023/24 audits are the first in the second five-year appointing period. PSAA awarded new contracts for this appointing period in 2022 to six audit firms, following a challenging and protracted procurement. The procurement demonstrated clearly the limited audit capacity available to meet the demands of the local audit market.
This consultation on the 2023/24 fee scale is taking place at a time of change in the local audit system. Consultees will be aware that the audit profession has been subject to high levels of scrutiny in recent years following several widely reported financial failures in the private sector. Over this period there have been growing delays in completing local audits. In July 2023 the Department for Levelling Up, Housing and Communities (DLUHC) announced proposals to address the backlog and is working with all stakeholders to tackle the complex issues involved. The proposals include the possibility of a time-limited revision to the Code of Audit Practice, which may reduce the amount of audit work needed while the backlogs are resolved. System leadership arrangements are also evolving, with the expected transfer of shadow system leadership from DLUHC to the Financial Reporting Council (FRC) in the near future.
PSAA is required under the local audit regulations to consult on and set the 2023/24 fee scale by 1 December 2023. Proposals to address the audit backlog are still under consideration and any changes affecting fees are still to be confirmed, so we cannot reflect them in the proposed fee scale yet. We are therefore consulting on the basis of existing audit requirements. We will need to assess the impact on audit fees once changes are confirmed, and at that point we will write to opted-in bodies to set out how we will update fees. Where an auditor has collected audit fees in part or in full and a change in requirements means that the total work done represents less than the fee already collected, then the auditor must return the balance and refund the body the appropriate amount. This ensures that bodies pay only for work that has been done.
Our fee scale proposals for 2023/24 audits are set out in more detail in the body of this consultation. In summary, they involve ensuring that scale fees are fully and consistently updated for the start of the new appointing period. This means that the scale fee for each opted-in body better reflects the audit work required under the current Code of Audit Practice published by the National Audit Office and the regulatory expectations of the FRC. Updating the fee scale in this way will have the benefit of making expected fees clearer for opted-in bodies much earlier in the audit cycle and reducing the volume of ongoing fee variations.
The consultation explains how PSAA proposes to calculate the audit fees which will make up the 2023/24 fee scale. The proposals involve managing the impact of a range of elements, including the additional fees now required for recurrent additional work; changes in local audit requirements (for example updated technical standards); and adjustments at individual bodies where local circumstances now require more audit work than previously. The 2023/24 scale fee calculation involves:
- the scale fee for the previous year (2022/23), as the starting point;
- adding in fees for any changes in the audit work now needed, replacing the need for fee variations wherever possible; and
- taking the total of the previous scale fee plus the additional work needed (a plus b) and applying the procurement adjustment for the new contract rates for audit firms.
When we announced the outcome of the procurement in October 2022, we advised opted-in bodies to anticipate a major re-set of total fees for 2023/24 involving an increase estimated in the order of 150% on total fees (that is, scale fees plus additional fees) for 2022/23. We are now able to confirm the increase required is 151%.
We recognise the significant financial pressures on all types of local government bodies and understand that any further cost pressure is unwelcome. However, the level at which we are proposing to set the 2023/24 fee scale is determined by the audit work needed to deliver audits compliant with the requirements of the Code of Audit Practice, and market rates.
The PSAA Board will consider consultation responses carefully in determining the final fee scale for 2023/24. We will publish the final fee scale on our website by 30 November 2023.