Context and Reform
Audit work under this scale will apply from March 2026 to the statutory backstop date of 31 January 2027, as confirmed under the dates proposed in a statement on the local audit backlog published by the Ministry of Housing, Communities and Local Government (MHCLG) in July 2024 and confirmed in the Accounts and Audit (Amendment) Regulations 2024.
The backlog solution involves modified opinions on a scale that is unprecedented globally, however, the scale fees do not cover the costs associated with disclaiming audits or rebuilding assurance, as these costs cannot be reliably estimated in advance. We will therefore process fee variations for rebuilding assurance work, as this is not considered recurring activity.
On 10 July MHCLG published a technical note for local bodies with disclaimed opinions due to the backstop dates as set out in the Audit and Accounting Regulations 2024 and confirming arrangements for the distribution of £49 million in funding to support clearing the backlog and rebuilding assurance. The National Audit Office (NAO) issued its Local Audit Reset and Recovery Implementation Guidance (LARRIG) 06. This relates to special considerations for rebuilding assurance for specified balances following backstop-related disclaimed audit opinions. The LARRIGs are intended to support the reset and recovery of local audit in England. The FRC has issued a guide on the Local Audit Backlog Rebuilding Assurance which explains how rebuilding assurance after a disclaimed opinion may work in practice on local government audits.
We are working closely with MHCLG and other system partners to inform and support the implementation of these measures, including funding arrangements that reflect the scale and complexity of the required audit work.
We welcome the Government’s intention to reform the local audit system through the proposed English Devolution and Community Empowerment Bill. Subject to its approval, the Bill would establish the Local Audit Office (LAO), representing a significant shift in fee-setting and system oversight.
The Bill introduces principles aimed at enhancing consistency, transparency, and responsiveness in fee arrangements. These may begin to inform PSAA’s work ahead of the LAO’s formal launch. If implemented, the reforms are expected to address key issues raised in the consultation, including fee transparency, audit complexity, and capacity challenges. By simplifying financial reporting and aligning fees more closely with the scope and risk profile of audited bodies, the proposed framework seeks to support a more consistent and sustainable audit system.
We have actively supported these reforms and continue to advocate for changes that improve audit delivery and value for money. We are working closely with stakeholders to ensure that the concerns raised in this consultation inform the development of the new framework.