Where the statement does not include all fee variation proposals requested by your auditor, this may be because our review of some elements is not complete because we are waiting for further information. If we subsequently approve other fee variation proposals, we issue an updated statement.
The Scale Fee represents our best estimate of the cost of delivering a standard audit. We expect that general first-year costs are incorporated within the firm’s overall bid rate or otherwise absorbed by the firm. In cases where exceptional additional costs arise, such as auditing a PFI scheme, these are addressed through the fee variation process. Such variations are applied as additions to the Scale Fee rather than as part of the Scale Fee to be reduced in subsequent years.
The evaluation ratio of 80% quality and 20% price for an audit services procurement is consistent with other recently let public sector audit procurement contracts. It differs from our approach to the 2017 procurement as our market intelligence was that firms would not engage with bodies that did not value audit and used ratios of a low quality/high price rating.
We considered the feedback provided and confirmed our approach to retain the 80% quality and 20% price evaluation ratio in the report summarising the outcome of the June 2021 consultation on the draft prospectus.
The proximity of the backstop dates for the up to 2022/23 and 2023/24 audits meant that we received fee variation proposals for over 700 audits in a short period. We are still working to process all fee variations and we are doing all we can to ensure we do so thoroughly, effectively and efficiently.
The firms submit fee variation proposals when they are ready to do so. We are therefore dependant on them providing these proposals, and appropriate supporting information, to allow us to complete our work.
We may therefore issue fee variation statements out of audit year sequence, for example we may be able to complete a particular audit year but are still working on an earlier year. We issue a statement as soon as we have completed our work, to provide bodies and firms with the final fee position as quickly as possible.
The 2025/26 triennial pension valuations show that many bodies are again reporting gross pension asset surpluses. These bodies must consider IFRIC 14, which results in additional audit work. Similar work continued for two years after the 2022/23 valuation. We therefore assess the work as recurring while surplus positions remain and propose including it in the relevant scale fees rather than processing annual fee variations. If a body is no longer in a surplus position we will apply a negative fee variation.
Rebuilding assurance work is a consequence of the local audit backlog and the use of statutory backstop arrangements, rather than the recurring annual audit. The amount of work varies significantly between bodies and over time, so it cannot be included reliably in a standard scale fee. PSAA will therefore continue to assess these costs through the fee variation process.
Work on VFM arrangements comprises two elements:
The VFM arrangements commentary fee variation in the statement may be higher than determined for other audit years because it includes the scale fee element for core VFM work.
For bodies where the auditor has only completed the VFM arrangements work and the work to issue a disclaimer opinion, there is no separate scale fee charge.
Fees for new recurring audit requirements are only consolidated into the scale fee once we have sufficiently reliable information on the level of ongoing audit work needed. The audit work for ISA (UK) 315 (risks of material misstatement) and linked work on ISA (UK) 240 (fraud) has been included in the 2024/25 scale fees, but we process it as fee variations for 2022/23 and 2023/24 because the Regulations do not allow us to update those scale fees once set, i.e. after 30 November 2022 and 2023 respectively.
We recognise that audited bodies consider the total audit fee, rather than the scale fee in isolation.
The proposed 2026/27 scale fee includes a 3.0% contractual inflationary adjustment. However, a body’s total fee may also include body-specific adjustments for recurring audit work and fee variations for additional work that is not included in the scale fee. This means that the overall movement in the total fee may differ from the inflationary adjustment.
Additional fees are not applied automatically. Where an auditor proposes a fee variation, PSAA reviews the supporting evidence, including the reason for the additional work, the work undertaken, the hours and staff grades used, and the amount proposed. We also consider the body’s comments and compare similar submissions to support a consistent approach. We may seek further evidence and reduce or reject amounts that are not adequately supported.
Our aim is to ensure that the total fee reflects the audit work reasonably required, while providing appropriate transparency and scrutiny over additional costs.
Scale fees reflect the audit work expected at each body. Two otherwise similar bodies may have different fees because of differences in group arrangements, pension positions, audit risk, or other local circumstances. PSAA reviews the evidence supporting each body-specific adjustment before including it in the proposed fee.