Changes in audit requirements
Standard and code setters including the Financial Reporting Council (FRC), International Accounting Standards Board (IASB) and the International Auditing and Assurance Board (IAASB), the NAO, and CIPFA/LASAAC make changes to the audit and accounting requirements over time. These changes can alter the extent of audit work required. When there is clear evidence that the additional work is significant and ongoing, we reflect the related costs in the fee scale.
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) in years when additional requirements do not apply.
Annually, we engage independent experts to undertake technical research that helps us evaluate how changes to auditing standards, financial reporting standards, the CIPFA/LASAAC Accounting Code, and the NAO Code of Practice may affect audit fees. The research reviews all forthcoming changes and concentrates detailed analysis on those expected to have the greatest impact on audit procedures 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.
Additional fees arising between the introduction of new requirements and their inclusion in the fee scale are submitted to us as fee variations.
The next section of this briefing provides information for 2025/26 audits on changes in local audit requirements where we have determined there may be the need for additional fees at some audited bodies.
2026 research scope
Our 2026 research considered the potential impact of a range of revised local audit requirements, including:
- revised International Standards on Auditing (UK), including fraud, external confirmations, going concern, reporting and other information;
- International Financial Reporting Standards (IFRS) and amendments relevant to local public bodies;
- changes to the 2025/26 and 2026/27 Codes of Practice on Local Authority Accounting;
- changes to the 2026/27 Service Reporting Code of Practice; and
- NAO Auditor Guidance Notes, Local Audit Reset and Recovery Implementation Guidance and Specific Guidance Notes.
Fees research 2026: focus areas
After reviewing the full range of changes, we focused our detailed assessment on the following areas:
- CIPFA/LASAAC Code of Practice on Local Authority Accounting 2025/26;
- NAO Auditor Guidance Note (AGN) 03 Auditors’ work on Value for Money arrangements
- NAO LARRIG 06 Rebuilding assurance
- NAO Supplementary Guidance Note (SGN) 05: Forming audit opinions where there is limited or no assurance over the classification between usable and unusable reserves.
Impact on 2024/25 audit work
The changes effective for 2025/26 do not support a general increase in fees. The table summarises the areas most relevant to fee discussions.
Pronouncements with potential impact on audit work for 2025/26
| Description | First Accounting Year Relevant | Summary of changes or relevance for 2025/26 audits | Summary of expected impact |
|---|---|---|---|
| Code of Practice on Local Authority Accounting 2025/26 | 2025/26 | Introduces a five-year revaluation approach supported by indexation, historical cost for intangible assets and prospective transition. This is intended to reduce the frequency of full asset valuations. | Implementation of HM Treasury’s Thematic Review on Non-investment Assets: – A revaluation expedient for property, plant and equipment, requiring valuations once every five years or on a five-year rolling basis and supported by indexation in intervening years. – Alternatively, a desktop valuation in year three in rare cases where no index is available. – Intangible assets to be held at historical cost only. – Transitional arrangements when applying these changes so they will be applied prospectively, with no restatement of prior year figures. – To assist authorities, an existing adaptation has been removed to allow both options permitted by IAS 16 for the treatment of accumulated depreciation when assets are revalued. A clarification to ensure that undertaking a full revaluation should not be a default process to demonstrate there has not been a material impairment of an asset and to comply with IAS 36. Simplification of accounting for preparers. For tangible assets, unlikely to have significant impact for auditors as sufficient appropriate procedures still need to be undertaken in respect of valuation, including in respect of evidence that there has been no material change in asset values. For intangible assets, reduction in audit work as work on valuation reduced. However, intangible assets less likely to be material. Overall impact on audit is yet to be determined. |
| AGN 03 – Auditors’ work on Value for Money arrangements Publication date – Version issued on 23 March 2026 Implementation date – supersedes the guidance issued on 14 November 2024 | 2025/26 and open prior audits | Updates planning, risk procedures and evaluation under the 2024 Code, including major incidents, reorganisations and weaknesses identified by another auditor. | Auditors do not need to revisit risk assessments for open pre-2025/26 audits solely because of the revised AGN. The guidance clarifies the arrangements that fall within “proper arrangements” under the 2024 Code. It also covers planning, additional risk-based procedures and the evaluation of significant weaknesses, including those arising from major incidents, reorganisations or findings reported by another external auditor. The core VFM framework remains unchanged. Consequently, the impact on routine value for money work should be minimal. Costs may be significant where the auditor identifies significant weaknesses. |
| LARRIG 06 Rebuilding assurance Guides risk assessment for specified balances after a backstop-related disclaimed opinion. Publication date – version issued 5 June 2025 Implementation date – Effective – Immediate | 2024/25 onwards where applicable | Follows a series of LARRIGs sequentially numbered 01-05 which were issued between 10 September 2024 and 13 November 2024 setting out Local Audit reset and recovery implementation guidance. Special considerations for rebuilding assurance for specified balances following backstop-related disclaimed audit opinions. | The guidance applies to English local authorities where the prior-year audit opinion was disclaimed because of the statutory backstop arrangements. It supports the auditor’s risk assessment when rebuilding assurance over specified transactions, balances and disclosures that require further consideration under LARRIG 05. The work required will depend on the balances affected and the evidence available. The impact is body-specific, and PSAA will consider any additional fees through the fee variation process. |
| SGN 05 Usable and unusable reserves Publication and implementation date – Version issued 15 December 2025 | Open audits | Supports audit opinions where assurance over reserves classification is limited or absent. | The guidance supports auditors where they have limited or no assurance over the classification of usable and unusable reserves at bodies subject to the statutory backstop arrangements. Auditors should apply it alongside the C&AG’s statutory guidance and the LARRIGs, particularly LARRIG 06 on risk assessment. The work required depends on the assurance gap, the quality of supporting records and the evidence needed to reach an audit opinion. The impact is body-specific, and PSAA will consider any additional fees through the fee variation process. |
The effect of these requirements will vary between bodies. Auditors should submit a fee variation only where the requirement causes substantial additional work beyond the assumptions in the scale fee. We will use evidence from completed audits and fee variations to assess whether any recurring costs should be incorporated into a future fee scale.
Other changes reviewed for 2025/26 are unlikely to affect more than a small number of local public bodies and/or to change audit input materially. These include:
- ISA 260 (Revised) – Communication With Those Charged With Governance
- ISA (UK) 505 (Revised) – External Confirmations
- IAS 21 – The Effects of Changes in Foreign Exchange Rates Lack of Exchangeability
- annual improvements to IFRS standards; and
- IAS 28 – Investments in Associates and Joint Ventures
If one of these changes results in substantial additional work at an individual body, the auditor may submit a fee variation proposal.
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 bodies can take to mitigate the amount of additional work needed.
Pronouncements and draft pronouncements with potential impact on audit input in subsequent years’
Our research identified several changes that may affect audit work after 2025/26. The table below summarises each change, its expected implementation date and our initial assessment of its likely impact on audit work and fees. We will continue to review these developments and will adjust the fee scale only where final requirements and reliable cost evidence show a substantial and ongoing change in audit work.
The table distinguishes confirmed requirements from proposals that remain subject to consultation. We can assess confirmed requirements with greater confidence, but it is too early to assess proposals that may change before implementation.
Future changes in local audit requirements
| Requirement | First Accounting Year Relevant | Summary of changes | Summary of expected impact |
|---|---|---|---|
| ISA (UK) 240 (Revised) – The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements Publication date – March 2026 Implementation date – Periods beginning on or after 15 December 2026 | 2027/28 | Stronger communication with those charged with governance about fraud risks. Additional requirements for public interest entities. | Relatively minor enhancements. Requirement to discuss with TCWG risks of fraud. For public interest entities only, requirement to discuss suspected irregularities with the entity, inviting it to investigate and take appropriate action and, in default report to authorities. |
| ISA (UK) 700 (Revised) Publication date – Revised May 2026 Implementation date -Periods beginning on or after 15 December 2026 | 2027/28 | Forming an Opinion and Reporting on Financial Statements. Changes to reporting, including key audit matters for bodies that voluntarily apply the UK Corporate Governance Code. | Inclusion of application material to discourage boilerplate disclosures. Certain decluttering provisions. Limited impact for entities that do not report under the UK Corporate Governance Code. |
| ISA (UK) 701 (Revised) Publication date – May 2026 Implementation date -Periods beginning on or after 15 December 2026 | 2027/28 | Communicating Key Audit Matters in the Independent Auditor’s Report | Reporting on key audit matters for entities that voluntarily comply with the UK Corporate Governance Code. For entities adopting the UK Corporate Governance Code, requirement to report on the impact of internal control on the audit and any significant deficiencies. Limited impact for entities not adopting the UK Corporate Governance Code. |
| ISA (UK) 720 (Revised) The Auditor’s Responsibilities Relating to Other Information Publication date – May 2026 Implementation date – Periods beginning on or after 15 December 2026 | 2027/28 | Requires an understanding of legal requirements and processes for preparing other information, with added work on inconsistencies and misstatements. | Additional requirement to obtain an understanding, based on work undertaken during the audit and to the extent necessary, of: – whether there are legal or regulatory requirements relating to other information; and – the process for preparing other information. Additional procedures on inconsistencies and misstatements in context of understanding of legal and regulatory environment. Some additional input required. Nature of impact depends on the other information and the legal and regulatory requirements relating to it. |
| IFRS 18 – Presentation and Disclosure in Financial Statements Publication date – April 2024 Implementation date – Periods beginning on or after 1 January 2027 | 2027/28 | Changes presentation and disclosure, including profit or loss categories, subtotals and management performance measures. | Carries forward most requirements of IAS 1 and adds supplementary requirements, including: – Categorising items in profit or loss as operating, investing or financing – Requiring additional profit subtotals – Distinguishing between integral and non-integral associates and joint ventures – Removing the choice of how to present cash flows from dividends and interest – Requiring additional disclosure about unusual items – Providing disclosure of management performance measures Unlikely to have significant impact on audit work. |
| Proposed amendments to UK auditing standards | |||
| ISA (UK) 250 (Revised) – Publication date – Re-Consultation March 2026 Implementation date -2028/29 Periods beginning on or after 15 December 2027 | 2028/29 | Consideration of Laws and Regulations in an Audit of Financial Statements | Replaces the distinction between ‘direct’ and ‘other’ laws and regulations (with only limited procedures required in respect of the latter) with a single category in respect of which procedures must be performed but with a strengthened risk assessment framework. However, amendments from 2023 Consultation to: – focus on identification of risks of non-compliance with laws and regulations giving rise to a risk of material misstatement; – focus on laws fundamental to operating aspects of business and ability to continue as going concern; and – clarification that specialist legal advice will not normally be needed. FRC impact assessment identifies increased effort of 15 hours per audit. Given the nature of the work this is likely to be at a relatively senior grade mix. Given that the statutory and regulatory framework for local authorities is complex but similar for many local authorities, firms may be able to share some research across similar bodies reducing time at individual engagements. Potential for further reduction if the LAO provided authoritative, researched guidance for use by all firms. |
| ISA (UK) 270 Publication date – Re-Consultation March 2026 Implementation date – Periods beginning on or after 15 December 2027 | 2028/29 | Special Considerations for Audits of Public Interest Entities —Communicating and Reporting to an Appropriate Authority Outside the Entity. | Wider reporting responsibilities outside the entity in the case of public interest entities than under ISA (UK) 250B but no inclusion of obligation to report ‘reportable matters’ in the absence of a legal, regulatory or ethical requirement to do so. The FRC impact assessment indicates around one additional hour per relevant public interest entity audit. The standard will not apply to all bodies. |
| Proposed amendments to new, revised or updated international auditing standards | |||
| ISA 330 – The Auditor’s Response to Assessed Risks ISA 500 – Audit Evidence ISA 520 – Analytical Procedures Consultation August 2026 Publication date – Consultation August 2026 Implementation date – estimated 15 December 2029 | Estimated 2030/31 | New definition of audit evidence, allowing auditors to consider all information irrespective of its source. | Strengthened evaluation of relevance and reliability of evidence. Reinforcement of professional scepticism. Wider definition of substantive procedures so not restricted to tests of detail and predictive analytical review. Requirement to consider the results of risk assessment analytical procedures in identifying and assessing risks of material misstatements. Recognition that when designing procedures, analytical procedures may be used with substantive procedures or tests of control may be used. Broader definition of tests of control to extend beyond test of assertion level risks of material misstatements. Facilitating auditor judgement about adopting a controls-based approach in response to risks of material misstatements. Application material about the use of technology. Conforming and consequential amendments to other standards. Overall, proposed amendments are major, but principles-based, with a significant implementation period anticipated. It is anticipated that they will facilitate review of firms’ methodologies in the context of advances in technology. It is premature to assess the impact of the proposals. |
| IAS 28 – Investments in Associates and Joint Ventures Exposure Draft: Equity Method of Accounting – IAS 28 Investments in Associates and Joint Ventures | Not yet confirmed | The proposed amendments clarify and standardise how the equity method applies to investments in associates and joint ventures. They address changes in ownership interests, transactions with investees, recognition of profits and losses, impairment and transition arrangements. | The amendments should reduce differences in accounting treatment by providing clearer requirements for applying the equity method. Entities may need to make adjustments at the transition date and apply other changes prospectively. This may require additional audit work in the first year for bodies with material interests in associates or joint ventures. The clearer requirements may reduce audit work in later years. |
| IAS 37 – Provisions, Contingent Liabilities and Contingent Assets Exposure Draft – Targeted Improvements – Proposed Amendments to IAS 37 (November 2024) | Not yet confirmed | The proposed amendments clarify the criteria for recognising and measuring provisions. They may result in earlier recognition in some cases, require indirect costs to be included where relevant and specify the use of a risk-free discount rate. | The revised recognition criteria may lead to earlier recognition of some provisions. Changes to the costs included in measuring provisions and the use of a risk-free discount rate may require bodies to revise existing calculations and judgements. This may result in additional audit work in the first year of adoption, particularly where provisions are material. |
| Code of Practice on Local Authority Accounting consultation | |||
| Code of Practice on Local Authority Accounting 2027/28 Publication date -Invitation to Comment on the 2027/28 Code of Practice on Local Authority Accounting in the United Kingdom (July 2026) | 2028/29 in respect of (1) to (4) Unspecified for (5) 2027/28 for (6) | Consultation includes areas. for discussion with no developed proposals. Those areas are not considered further. | The consultation covers the following proposals: Accountability report: Introduce a report setting out performance against funding metrics alongside the financial statements prepared under generally accepted accounting practice. The audit impact will depend on the content of the report and whether it is subject to assurance. Until these requirements are developed, the impact on audit work cannot be assessed. Primary financial statements: Revise the primary statements, including presenting income and expenditure by nature, removing some supplementary disclosures and reducing complexity arising from statutory overrides. The proposals may also remove the movement in reserves note. The audit impact will depend on the final reporting requirements and their relationship with the proposed accountability report. Disclosure notes: Revise the disclosure notes to reflect the proposed changes to the accountability report and primary statements. The audit impact will depend on the final disclosures and any related assurance requirements. Expenditure and Funding Analysis: Remove the requirement to prepare the Expenditure and Funding Analysis. This may result in a minor reduction in audit work. Sustainability reporting: Introduce sustainability reporting for local authorities with at least 500 full-time equivalent employees or total operating income above £500 million over a three-year period. The impact on audit work should be limited if the reporting is not subject to assurance. IFRS 18: Implement IFRS 18, with adaptations to the presentation and location of information to reflect the proposed accountability report. The audit impact will depend on the final accounting, reporting and assurance framework. Overall, it is too early to assess the impact on audit work and fees because the proposals and any associated assurance requirements remain under development. |
Please note that the table above does not reference the upcoming accounting standard IFRS20 (Regulatory Assets and Regulatory Liabilities), which is expected to be implemented on accounting periods after 1st January 2029 as it is expected to have no impact on the public sector.
Of the confirmed changes, the accounting standards most likely to have a significant impact on the audit process are ISA (UK) 720 and ISA (UK) 250.
Proposed ISA (UK) 270 would widen external reporting responsibilities for public interest entities. The current impact assessment indicates around one additional hour per relevant audit. It will not apply to all opted-in bodies.
International proposals on audit evidence, responses to risk and analytical procedures are extensive but remain at consultation stage. Their effect cannot yet be assessed. The long implementation period should allow firms to update methodologies and technology before the standards take effect.
We will continue to review these changes each year. We will adjust the fee scale only when final requirements and reliable cost evidence support an ongoing change. 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 2027/28 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.