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

Appendix – Fee variation consultation Q&As


Question Answer
National fee variations
1. Will PSAA provide more detailed information on the approach to national variations? PSAA has commissioned a programme of research to assess the potential suitability for national determination of a series of forthcoming changes in audit requirements, such as the introduction of IFRS 16 on leases. Where it is possible to determine a national variation, that is a national fee that would be appropriate across all, or groupings of, relevant bodies, we will consult opted-in bodies and other stakeholders on our proposals. Where it is not possible to determine a national variation, we aim to provide information for opted-in bodies and auditors on appropriate fee ranges and factors that may need to be considered.
2. Will fees for national variations reflect the circumstances of individual bodies? The premise of national fee variations is that the extent of the additional work required will be similar for groups of bodies with similar characteristics, rather than being determined after assessing the position at the level of each individual body. The system will only realise the benefits outlined if audited bodies and audit suppliers accept that some estimation is implicit in this approach. Where a body can demonstrate that a particular audit requirement does not apply to them, the national variation will not be required.
3. How will PSAA ensure that national variations are determined early, to give audited bodies as much notice as possible of additional fees? Some changes in audit requirements are not known in sufficient time to allow for national assessment ahead of the auditor undertaking their audit work. Our programme of research is focusing on specific planned changes in audit requirements but we will keep the topic areas under review. The aim is to assess whether a standardised fee or a fee range can be determined before audit work is required. PSAA will give notice in its consultations on national fee variations.
Local fee variations
4. Will PSAA provide more guidance to opted-in bodies to support local fee variations discussions? Information on PSAA’s fee variations process including the respective roles and responsibilities of PSAA and appointed auditors is available on our website.

Where PSAA is unable to determine a national fee for a particular additional audit requirement it will provide information on appropriate fee ranges and other factors to consider to support local fee variation discussions.

5. Will PSAA adjudicate where an audited body and an auditor cannot agree on a fee variation? PSAA’s process for approving fee variation requests from auditors includes careful checks and balances. Auditors are required to discuss and seek to agree any relevant proposals with an appropriate representative of the body concerned, and all proposed variations are subject to challenge and ultimate determination PSAA.
6. Can the timetable for agreeing local fee variations be accelerated? PSAA expects appointed auditors to discuss with audited bodies any potential need for fee variations at the audit planning stage wherever that is possible.
Fee rate increase
7. What is the justification for an increase of 25% in the fee rates for variations? Current fee variation rates are significantly below market rates, including those that apply in other parts of the public sector. PSAA feels that the increase in rates is justified. The new rates remain keenly competitive compared to those payable in other sectors.
General questions
8. Why should additional fees be paid by bodies where auditors are focusing on technical accounting areas which add little to the quality or accuracy of the financial statements at the expense of those that impact on service delivery? The scope and requirements for auditors’ work are determined by the following:

  • the Code of Audit Practice and supporting Auditor Guidance Notes published by the NAO;
  • professional standards applicable to auditors’ work set and enforced by the FRC;
  • financial reporting requirements set out in the Code of Practice on Local Authority Accounting published by CIPFA/LASAAC.

Auditors are required to have regard to these requirements.

The Redmond review includes recommendations in relation to system leadership in the local audit framework and improving the transparency of accounts. MHCLG is considering the options in response to the Redmond recommendations.

9. Why are the costs of additional work for changes in audit requirements not covered by a contingency in audit contracts? PSAA let contracts to five audit firms in 2017 for the five-year appointing period covering the audits of the accounts of opted in bodies for 2018/19 to 2022/23. The local audit framework under which the contracts were let requires appointed auditors to undertake their work in compliance with the requirements of the Code of Audit Practice. It also requires the appointing person to set audit fees based on these requirements. The legal framework recognises the potential need for additional audit work and includes a provision in the Regulations for these to be charged where needed.

As for previous audit contracts for local public bodies, the current audit contracts were let on the basis of expected local audit requirements as they were known in 2017. In the interests of safeguarding public funds, the contracts do not provide for potentially costly contingencies for changes in requirements that may or may not occur and for which the specific impact could not be quantified at the time of contract award.

10. Why was the consultation not clear on the likely impact of changes to current arrangements from the Redmond review? The consultation was issued in November 2020, in the period when MHCLG was considering its response to the recommendations in the Redmond review. Their policy response was published in December 2020, and further consultation proposals are anticipated in Spring 2021. PSAA is not in a position to speculate on potential changes to arrangements and is focusing on continuing to deliver its current statutory responsibilities.


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