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

The proposed changes on which PSAA consulted

Our consultation set out proposals for a new approach to fee variations for audits of 2020/21 and subsequent accounts, based on two types of variation:

  • national variations, for changes that relate to the conduct of all or most audits, such as changes to the auditing and accounting codes, standards and regulatory requirements, where a standard cost can reasonably be estimated; and
  • local variations, for issues that relate to local factors arising from the conduct of a particular audit, such as the additional audit work required if accounts reflect complex transactions that are not built into the scale fee, or where working papers are poorly prepared, or for work relating to an auditor’s statutory responsibilities such as objections, statutory recommendations or public interest reports.

We believe national variations can obviate the need for local fee variation discussions for system-wide issues, relieving audited bodies and audit firms of much of the burden of dealing with them at local level. The proposed approach responds directly to stakeholders’ expressed concerns and offers the prospect of improving both the efficiency of the fee variation process and the consistency of resulting outcomes.

The circumstances in which PSAA would be able to determine a national fee variation, or set out a fee range, will depend on the applicability of the particular change in requirements to all opted-in bodies or groupings of bodies. It will also depend on the extent to which the additional work required is predictable and consistent across bodies rather than variable based on local conditions. As an example, the McCloud pensions judgement has been a national issue in recent years, but the additional work required would not lend itself to a national fee variation because application varies significantly between audited bodies and in an unpredictable way.

The consultation also proposed an increase of 25% in the fee rates used for fee variations. The rates have been subject to successive fee reductions in recent years, linked to changes in scale fees. Over the same period, rates for audit work in other sectors have risen. This is an increasing concern to audit suppliers given the higher volumes and complexity of some of the additional work for which fee variations are needed. The proposed new rates continue to be keenly competitive compared to rates payable in other sectors.

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