Changes in audit requirements
Audit requirements have grown in recent years due to increased regulatory challenge on audit quality, updated auditing and financial reporting standards, and the move to a VFM arrangements commentary, all of which have increased audit fees. From 2023/24 general audit fees have also increased because of the increase in firms’ rates which resulted from our 2022 procurement of audit services.
We can only include additional fees in the published fee scale when we have sufficient and reliable information on the actual impact of a change in accounting or audit requirements. We do not include a contingency element in the fee scale, as this would mean bodies paying more than is necessary for their auditor to deliver an audit that meets the requirements of the NAO Code of Audit Practice (the Code) audit in years when additional requirements do not apply.
Each year we commission technical research from independent experts to help us understand the impact on audit fees of changes to the Code, auditing and financial reporting standards, and the CIPFA/LASSAC Code of Practice on Local Authority Accounting. From a complete list of forthcoming changes, the research focuses detailed work on those requirements that could have a significant impact on audit work and fees.
We use the results of the research to support our work on setting the scale fees each year and considering fee variations requested by auditors. There can be a delay of more than one financial year between the introduction of a change in requirements and the point at which we can consolidate additional fees for ongoing work into the fee scale. This is because we need to wait for information on completed audits before we have sufficient evidence of the cost of the work to support any ongoing change in fees.
There are some changes in auditing or financial reporting standards where the impact will be dependent on the circumstances of an individual audited body. In these circumstances we will need to wait for sufficient information from a range of completed audits before we have evidence of the cost of the work to support any ongoing change in fees on a body-by-body basis.
For the period from introduction of a change in requirements to consolidation of fees into the fee scale, any additional fees needed are submitted to us as fee variations.
The next section of this briefing provides information for 2024/25 audits on changes in local audit requirements where we have determined there maybe the need for additional fees at some audited bodies.
2025 research scope
Our 2025 research considered the potential impact of a range of revised local audit requirements, including:
- the Revised Ethical Standard 2024;
- the Code of Audit Practice 2020 and 2024 (the Code);
- International Standards on Quality Management (ISQM) 1 and 2;
- revised International Standards on Auditing (UK); and
- changes to the Code of Practice on Local Authority Accounting in the UK.
Fees research 2025: focus areas
| Quality management | Planning | Law and Regulations | Groups | Leasing | Code of Accounting Practice |
| •ISQM (UK) 1 •ISQM (UK) 2 •ISA (UK) 220 | •ISA (UK) 240 •ISA (UK) 315 | •ISA (UK) 250 •ISA 2X0 (draft) | •ISA (UK) 600 | •IFRS 16 | •Infrastructure •Indexation •Pension disclosures |
Subsequent work has focused on establishing whether the additional work required in these areas is substantial and considering whether it is possible to determine the cost of additional audit work at this time.
Impact on 2024/25 audit work
The research concluded that many of the changes in audit requirements are unlikely to result in a general substantial increase in audit work. However, the changes in the requirements of ISA (UK) 600 (audit of group financial statements) and the application of IFRS 16 (leases) may have an impact for individual bodies depending on the local arrangements and circumstances as shown in the table below.
Key areas of additional audit work for 2024/25 audits
| Audit requirement | Summary of changes | Expected impact |
|---|---|---|
| ISA (UK) 600 Specific considerations for an audit of group financial statements Effective from: 2024/25 | The revised standard: Focuses the group engagement team’s attention on identifying, assessing and responding to risks of material misstatement at the group financial statement level; Reinforces the need for robust communication between group and component auditors; Requires greater involvement from the group engagement team in component audits with an enhanced emphasis on review of component auditor documentation; Enhances procedures to overcome restrictions on access to people and information; Clarifies the application of the concepts of materiality and aggregation risk; and Enhances documentation requirements. | The impact is for entities preparing group accounts; Additional fees will be highly dependent on audited body circumstances and size and nature of group structure; Potential impact on some bodies if the NAO’s requirements for the Whole of Government Accounts consolidation change; and May be possible to consolidate into fee scale after the implementation year when there is sufficient body-specific information. |
| IFRS 16 Leases Effective from: 2024/25 | Under the 2024/25 CIPFA Code mandatory application of IFRS 16 is required in 2024/25. Early adoption was encouraged from 1 April 2022 or 1 April 2023 but not mandated. IFRS 16 replaces IAS 17 in relation to accounting for leases. Its main impact is to remove (for lessees) the traditional distinction between finance leases and operating leases. It also covers the mandated remeasurement of the lease liability for any service concession arrangements such as PFI contracts. | The impact is for entities with leased assets; Additional fees will be highly dependent on audited body circumstances, the preparedness of the entity, the completeness and accuracy of accounting records and the quality of supporting documentation and evidence; Significant year 1 impact not applicable subsequently; and May be possible to consolidate into fee after the implementation year when there is sufficient body-specific information. |
We will consider additional work for these changes under the fee variations process until it is possible to determine any appropriate change in fees that can be consolidated into the fee scale. As additional fees are likely to vary for these audit requirements depending on the local circumstances of individual bodies, we will not be able to estimate the ongoing impact on scale fees until we have sufficient information from completed audits to enable a balanced judgement. For 2024/25 the cost of additional audit work will be dealt with through the fee variation process.
The research recommendations also highlighted some key messages about the changes in local audit requirements:
- for most new requirements, the impact in the first year of implementation is more significant than for subsequent years. This will particularly be the case with IFRS 16 (Leases);
- the preparedness of opted-in bodies to respond to new requirements and provide the supporting documentation and evidence that auditors require has a significant influence on the amount of audit work required; and
- increasing pressure on Key Audit Partner time for some revised standards creates further pressure on auditor resources to deliver the audit work required.
Appendix 1 provides information on factors that may affect the level of additional fee required at an individual body for a range of audit requirements and the actions opted-in bodies can take to mitigate the amount of additional work needed.
Future changes in local audit requirements
Our research has identified some changes in local audit requirements for audit years 2025/26 and beyond which is expected to have an impact on the level of audit work required in those years:
Future changes in local audit requirements
| Audit requirement | Summary of changes | Expected impact |
|---|---|---|
| Code of Accounting Practice Effective from: 2025/26 | Ending of temporary relief that local authorities were not required to report the gross book value and accumulated depreciation for infrastructure assets. | Minimal. |
| IAS 16 Property Plant and Equipment (Code of Accounting Practice application) Effective from: 2025/26 | For property, plant and equipment a revaluation is required once every five years, or on a five-year rolling basis, supported by indexation in intervening years. In the rare cases where no index is available, local authorities may use a desktop valuation in year three instead of indexation. Transitional arrangements to apply prospectively. Changes in nature of audit procedures required. | There will be some changes in the nature of some audit procedures however the impact has yet to be quantified by audit suppliers. |
| IAS 36 Impairment (Code of Accounting Practice application) Effective from: 2025/26 | A full revaluation should not be a default process to demonstrate there has not been a material impairment of an asset. | Potential reduction in audit work required at some bodies. |
| IAS 38 Intangible Assets (Code of Accounting Practice application) Effective from: 2025/26 | Intangible assets must be measured at historical cost. Transitional arrangements to apply prospectively. | If revaluation accounting had been adopted, potential reduction in audit procedures required at some bodies. |
| Pension Fund Bodies IAS 19 Employee Benefits Effective from: 2025/26 | Triennial Valuations are due by 31 March 2026. | There will be additional costs for Triennial Valuation work. The amount will be body specific and dealt with through the fee variation process. |
| Pension Fund Bodies Pooling and potential Merger of Local Government Pension Schemes Effective from: 2025/26 | The Government’s proposals for the reform of Local Government Pension Schemes may lead to changes in governance and administrative arrangements. | There will be additional costs do deal with the audit risks arising from the pooling of Local Government Pension Schemes. The amount will be body specific and dealt with through the fee variation process. |
Our research identified some potential significant amendments in local audit requirements for future audit years where proposed changes are not yet confirmed. These included:
- Amendments to ISA (UK) 250 – Consideration of Laws and Regulations in an Audit of Financial Statements; and
- Consultation on changes to the 2026/27 Code of Accounting Practice.
Our research will continue to review the impact of changes in auditing and accounting requirements on a year-by-year basis.