Introduction
This consultation considers the proposed scale of fees for the work to be undertaken by appointed auditors in respect of the 2020/21 financial statements for local bodies that have opted into Public Sector Audit Appointments’ (PSAA) national auditor appointment scheme.
PSAA is specified by the Secretary of State for Housing, Communities and Local Government under the Local Audit and Accountability Act 2014 (the Act 2014) and the Local Audit (Appointing Person) Regulations 2015 (Regulations) as the appointing person for principal local government bodies in England, including local police and fire bodies. Under the Regulations we are responsible for consulting on and setting scales of fees for authorities that have opted into our auditor appointment scheme.
Scale fees are based on the expected audit work to be undertaken by appointed auditors under the requirements of the:
- Code of Audit Practice (Code) and supporting Auditor Guidance Notes (AGNs) published by the National Audit Office (NAO);
- financial reporting requirements set out in the Code of Practice on Local Authority Accounting published by CIPFA/LASAAC; and
- professional standards applicable to auditors’ work.
Other factors that may also need to be taken into consideration in setting the fee scale include changes in audit regulation and inflation. We also take account of the previous year’s audits to identify and consider the ongoing implications of any relevant factors that may have emerged.
The Regulations require PSAA to set a fee scale before the beginning of the relevant financial year, and that this cannot be amended after the financial year has begun. However, the Regulations allow the audit fee for an individual body to be varied if substantially more or less audit work is required than envisaged by the scale of fees. In some cases this may result in a one-off fee variation affecting a single year, in others it may point to the need for a permanent adjustment to the scale fee for the body concerned.
The timing of this year’s consultation is slightly later than usual. Under normal circumstances we would have consulted on our approach to the scale of fees for 2020/21 during October 2019 to December 2019. However, we wrote to all S151 officers explaining the need to delay the consultation pending finalisation of the new NAO Code of Audit Practice. The consultation on the Code has now been completed and the new Code was formally laid in Parliament on 22 January 2020. The AGNs that support the Code will provide more detail on the auditor’s responsibilities, and we understand that the NAO intends to consult publicly in Summer/Autumn 2020 on them.
The background to the 2020/21 fee consultation is unusually turbulent and challenging. Following a number of significant corporate financial failures in the private sector, the Government has commissioned three important reviews. Sir John Kingman has reviewed audit regulation, the Competition and Markets Authority has reviewed the audit market, and Sir Donald Brydon has reported on the quality and effectiveness of audit. In addition to these reviews which focus primarily on private sector audit, Sir Tony Redmond is currently reviewing financial reporting and audit in local government and is expected to report later this year.
It is not yet clear what the long term implications of these reviews will be. However, the impact of early recommendations has been significant, heightening the pressure on auditors to meet regulatory requirements to deliver audits which reflect greater professional scepticism across all sectors, including local audit.
The outworking of these pressures has had a major impact on the conduct of local audits of 2018/19 financial statements, and has highlighted a number of significant underlying challenges for local auditors and/or audited bodies. These include the very tight timetables for preparation of accounts and delivery of audit opinions; recruitment and retention difficulties which are resulting in an increasing shortage of audit resources with suitable experience for local government work; auditor concerns about the quality of some bodies’ pre-audit accounts and working papers; and challenges resolving technical issues within increasingly complex accounts. The end result has been a significant number of audit opinions being delayed beyond the 31 July target publication date set out in the Accounts and Audit Regulations.