Themes in consultation responses
There is a very broad range of views reflected in individual responses to the consultation. The most common themes were:
- Concern about the fee increase for 2023/24, given the financial pressures on bodies.
- The expectation that PSAA must hold auditors to account for delivery.
- The increase in fees must entail a better service from the firms.
- Criticism about the efficiency/performance of the firms.
- The level of the fee increase is not acceptable.
- There should be additional funding for the increase.
- Audit costs should be reduced to provide better value for money for taxpayers.
- Auditors should focus on areas of the accounts that are relevant to local government bodies.
Many of the responses supporting the consultation proposals are clear that an overall increase of 151% on total fees for 2023/24 is very unwelcome. However, there is recognition of the circumstances that have led to the increase, specifically more extensive audit requirements. The increase is also the outcome of our public procurement drawing on the entirety of the market available to us within the current framework. The procurement was extremely challenging, and we only secured the required audit supply after several procurement rounds. In England, as opposed to the other parts of the UK there is no auditor of last resort. We are entirely dependent on the market to supply and so determine the price of audit work. No firm is obliged to undertake this work and firms make commercial decisions taking into account the other opportunities to deploy their limited staff resources.
The positive responses mostly welcome PSAA’s proposed actions to build into scale fees the additional fees for ongoing audit requirements. Opted-in bodies say they welcome greater certainty about total audit fees, having also raised this concern in previous fee scale consultations. Our approach in setting the 2023/24 fee scale has been to ensure that fees are set as realistically as is possible, updating fees to reflect the changes in recent years in audit requirements under the Code of Audit Practice and the regulatory expectations of the FRC. Updating the fee scale in this way is intended to make expected fees clearer for opted-in bodies much earlier in the audit cycle and reduce the volume of ongoing fee variations.
Consultation responses which do not support the fee scale proposals generally take the view that opted-in bodies should not be required to pay additional fees, and that any additional requirements should be allowed for in the audit contracts. These views are, however, in the minority. The local audit framework under which the contracts are let requires the appointing person to set audit fees based on the requirements of the Code of Audit Practice. The legal framework recognises the potential need for changes in the level of audit work required to deliver a Code-compliant audit and includes a provision in the regulations for this. In the interests of safeguarding public funds, the contracts do not provide for potentially costly contingencies for changes in requirements that may or may not occur and for which the specific impact could not be quantified at the time of contract award.
There is an expectation in consultation responses that the higher fees must come with a more timely and efficient audit experience. Once appointed, auditors exercise their responsibilities independently under local audit legislation and the professional framework, and PSAA does not have the ability to penalise audit firms or direct the way they work. The audit contracts with the firms reflect the requirements of the Local Audit and Accountability Act 2014 and the Appointing Person Regulations (2015) and are very different to a typical services contract in relation to any sanctions PSAA could apply. However, where possible we have made some positive changes to contract monitoring and management provisions in the audit services contracts applicable from 2023/24 to reflect the changed local audit market and in view of feedback from opted-in bodies. The new contract measures include a milestone-based payment mechanism and monitoring using performance indicators. In addition, the FRC’s Ethical Standard does not permit contingent fees so it is not possible to reduce supplier payment for not delivering an audit opinion by the target publishing date. It remains the case that PSAA’s new contract arrangements need a functioning and robust supply market to be fully effective.
A set of questions and answers on the issues raised in responses to the fee scale consultation is available on our website.