Summary of the response to PSAA’s consultation on a proposed new system for fee variations

The rationale for changes to fee variations arrangements

Auditors and auditing have been subject to very high levels of scrutiny in recent times following a number of widely reported financial failures in the private sector. As a result, auditors have needed to extend their work programmes to satisfy higher regulatory expectations. The scope of local audit work has also evolved, with a new Code of Audit Practice in 2020 and other changes in technical and professional requirements. These changes have led to the need for additional audit work and fees at the majority of opted-in bodies.

Under current local audit framework regulations, PSAA must set a fee scale before each financial and subsequent audit cycle begins. At that stage the audits of the previous financial year have not been undertaken, so PSAA does not have the benefit of accurate information on any additional costs for the next fee scale. The regulations do not allow for changes to the fee scale after the start of the financial year but allow for fee variations if the need for additional audit work arises. This presents very real challenges in setting accurate fee scales, which in turn has created pressure on the fee variations process because of the higher number of claims than previously.

In its initial response to the Redmond report MHCLG has said “Subject to consultation, the Department will review and reform regulations to provide the appointing person with greater flexibility to ensure the costs to audit firms of additional work are met. This could include enabling the appointing person to allow a fee scale to be set or changed in-year (subject to consultation with the auditor and the audited body), and/or enabling the appointing person (subject to appropriate consultation) to set additional fees across groupings of audited bodies in-year where there is clear evidence of additional work that affects those groupings.” In PSAA’s view the changes outlined would be extremely helpful and a welcome step towards a more flexible system.

The current fee variations process requires the auditor to discuss all proposed variations with audited bodies before submission to PSAA for determination. Feedback from both auditors and audited bodies frequently refers to the pressures this requirement places on them. They are also concerned about the practical challenges and limited value of local discussions about proposed variations which relate to factors which affect most or all audited bodies.

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