Frequently Asked Questions

PSAA…

• is the Government’s choice to run this vital national scheme
• has a specialist, experienced team who will use their expertise and sector knowledge to make transparent and independent auditor appointments
• aims to procure an audit service of the required quality at a realistic market price and support the drive towards a long-term competitive and more sustainable market for local audit
• is very familiar working with the complexities of the evolving local audit framework and regulations when managing contracts with audit firms, and setting and determining audit fees
• is a not-for-profit organisation whose costs are around 2% of the total scheme costs. Any surplus is distributed back to scheme members
• independently assesses proposed fee variations, authorising billing only when satisfied that the proposal is justified and in line with the requirements of the statutory regulations
• is an active member of the Local Audit Liaison Committee, chaired by the FRC and attended by key local audit stakeholders. This enables us to feed in body and audit perspectives to decisions about changes to the local audit framework, and the need to address timeliness through actions across the system
• conducts research to raise awareness of local audit issues, and works with DLUHC and other stakeholders to enable changes arising from Sir Tony Redmond’s Review, such as more flexible fee setting and a timelier basis to set scale fees
• issues e-bulletins that provide updates on developments across the local audit system to seek to address the well-documented challenges

Joining the scheme…

• is we believe the best option for securing the appointment of a qualified, registered auditor in the current challenging market, where there are only ten registered suppliers (as at February 2024)
• avoids the need to undertake an auditor procurement and ongoing contract management activities (e.g. fee variation management), saving local time, effort and cost. This includes removing the need to establish an Auditor Panel with an independent chair to oversee a local procurement and contract management
• is the most efficient solution for the sector. A collective procurement is much less time-consuming for bodies and for auditors than a multiplicity of local, smaller procurements
• gives you free access to our Local Audit Quality Forum events on key topics

And finally, please note that…

• the scope of local audit is fixed, as it is defined by statute and by accounting and auditing codes. It would be the same under any local procurement as under PSAA’s procurement
• some typical services contract levers such as penalties for late delivery cannot be applied to an audit services contract, as fees calculated based on a specified outcome (e.g. specific date completions) are classified as contingent fees, not allowed under the FRC’s Ethical Standard

For further information please contact generalenquiries@psaa.co.uk.

The financial statements are the responsibility of the Authority, and they retain full accountability for their preparation. Auditors are appointed to provide an independent audit of these statements, not to prepare them.

The expectations for both auditors and audited bodies are outlined in the Statement of Responsibilities, available on our website.

We continue to advocate for more proportionate financial reporting and are encouraged by CIPFA’s stated intention to reform the financial statements.

The bid rates submitted in response to PSAA’s 2022 audit services procurement, covering the audits of 2023/24 to 2027/28, required a significant increase in audit fees compared to our previous procurement in 2017. The factors that led to this increase principally relate to increased audit requirements and a less competitive local audit market.

In consulting on the fee scale each year, we consider the factors which may influence the audit work needed. This starts with the existing scale fees and may also include changes in audit requirements, for example revised auditing or financial reporting standards. It may also reflect changes in the local circumstances of individual audited bodies.

If the volume of audit work changes, then the total fee will vary accordingly. For example, if a national or local factor triggers an increase or decrease in the volume of audit work then the fee will change. For audits from 2024/25, the audit contracts also require us to consider changes in inflation.

We understand that an increase in audit fees poses a significant funding challenge for local bodies already facing a daunting range of financial pressures.

Each year, we publish an Information Paper to support local discussions between opted-in bodies and auditors on auditing and accounting issues that may affect audit fees. The paper also outlines practical steps that audited bodies can take to help mitigate fee variations.

PSAA provides effective management of the contracts with appointed audit firms. Details of our contract management arrangements are on our website and in these FAQs under the topic ‘Contract Management’.

We meet regularly with the public sector leads at each contracted firm and ensure that matters concerning opted-in bodies are brought to their attention. We also work closely with MHCLG and other key stakeholders to identify ways to address concerns. 

Audit fees are driven by the amount of audit work required to comply with the NAO Code of Audit Practice (the Code), alongside the fee rates determined through procurement processes. When setting scale fees, we also make adjustments for bodies where there are confirmed known changes in the level of audit work required, supported by comparative analysis across groups of bodies.

We strongly believe that reducing the volume of local audit work is essential to delivering a more proportionate audit that complies with the Code. This should be a key objective in reforming both the accounting and auditing frameworks.

Once established, the Local Audit Office (LAO) will have greater flexibility to set and vary audit fees than is currently available to PSAA. Crucially it will be able to influence the nature and extent of audit work that is required. It will also consolidate functions that naturally complement the fee-setting process, such as responsibility for the Code of Audit Practice and regulating auditor performance.

Bodies and Audit Committees should receive from their external auditor a clear and transparent explanation of any proposed additional fee including the additional work undertaken and the reasons it was required.

The auditor should explain the nature and scope of the work undertaken, the audit risk, accounting issue or other requirement that gave rise to it, how the work relates to the Code of Audit Practice and why they consider that the work falls outside the work already covered by the scale fee and how the proposed additional fee has been calculated.

The explanation should focus on the circumstances and audit requirements that led to the additional work. Where additional effort has resulted from changes to the audit timetable, the availability or quality of information, or other issues encountered during the audit, the auditor should explain the circumstances, the impact on the audit and the steps taken by both parties to manage that impact.

The auditor should also be able to provide the additional hours worked in relation to the fee variation proposal, split by the grade of staff rate card published by PSAA.

Bodies and Audit Committees should also expect the auditor to demonstrate that the additional work was necessary and proportionate, and to distinguish it from time arising from the auditor’s own internal resourcing arrangements or inefficiencies. They should also expect auditors to explain how additional costs could be mitigated.

When we review a fee variation proposal, we consider the supporting evidence to assess whether the additional work was necessary, and appropriately linked to the audit requirements and risk, and whether the proposed fee is reasonable and proportionate.

In April 2025, MHCLG announced 16 new commitments to reform local audit, including simplifying financial reporting requirements and increasing audit capacity to reduce reliance on a small number of auditors. These reforms are supported by £49 million in funding to help eligible bodies clear audit backlogs and cover the additional costs of rebuilding audit assurance.

MHCLG wrote to all Chief Financial Officers of eligible local audit bodies on 24 June 2025 regarding the funding and published further details in a technical note on its website on 10 July 2025. The funding is provided as a non-ring-fenced grant and will be released in two stages during 2025/26. Allocations are based on audit fee size and the number of modified audit opinions. Funding is conditional on the publication of outstanding audited accounts and payment of audit fees determined by PSAA.

The first payments were made on 26 and 27 June 2025. MHCLG’s technical note explains how allocations were calculated and lists payments to each eligible body in section 3. The second instalment will be paid early in 2026 following a review of costs.