Frequently Asked Questions

PSAA has a robust process to review all fee variations submitted. The process is carried out diligently in line with the expectations of the Local Audit (Appointing Person) Regulations 2015 (Regulation 17(2)). PSAA is conscious that when a determination is made it is legally binding on both an auditor and the audited body, and that it is public money being transacted. This can take some time, especially as the balance between scale fees and the volume of additional fees was never envisaged to be as it is now. It has brought in additional capacity to help process the increased volume.

Other factors include that firms can take time to submit variations and supporting information, and arranging a meeting with the body can sometimes take a while to achieve.

The process is not protracted if information provided by the auditor is sufficient to enable PSAA to comply with its statutory duties in assessing a fee variation. A change in February 2022 to the Local Audit (Appointing Person) Regulations enables the scale fee to be set in November, closer to the start of audit work the following year. This should lead to a reduction in the number of audits that require scale fee variations. If necessary, in the case of significantly protracted audits we can approve interim fee variations.

A newly established eligible body has the right to opt in by giving notice to PSAA.

An eligible body who was invited to join but declined only has the right to request to become an opted-in authority.

The notice must confirm the body’s decision to opt in, and must specify the body’s postal address. The body will become an opted-in authority for the remainder of the appointing period on the date the notice is received by PSAA.

New bodies which meet the definition of smaller authority (s6 of the Local Audit and Accountability Act 2014) where the higher of the authority’s annual gross income and expenditure does not exceed £6.5m, fall within the arrangements of the Smaller Authorities Audit Appointments Limited.

The requirement for joint committees to produce statutory accounts ceased after production of the 2014/15 accounts and they are therefore not listed in Schedule 2 of the Local Audit and Accountability Act 2014.

Joint committees that have opted to produce accounts voluntarily and obtain non-statutory assurance on them need to make their own local audit arrangements as they are not eligible to join the PSAA scheme.

Firms and key audit partners must be registered with the ICAEW to provide local audit services, in accordance with the Local Audit and Accountability Act 2014. The quality of the firms’ work will be subject to scrutiny by both the ICAEW and the Financial Reporting Council (FRC). The FRC and the ICAEW have their own enforcement procedures where an audit does not meet the regulators’ quality standards.

PSAA will monitor that firms maintain the appropriate registration.

The Ethical Standard issued by the FRC precludes contingent fees. A contingent fee basis includes any arrangement made at the outset of an engagement under which a specified commission on or percentage of any consideration or saving, is payable to the firm upon the happening of a specified event or the achievement of an outcome (or alternative outcomes).

PSAA’s audit contracts cover an NAO Code of Audit Practice audit of opted-in bodies only. PSAA has no power under the Local Audit and Accountability Act 2014 or the Regulations to make arrangements or appointments for assurance on grant claims and returns.

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 bid rates submitted in response to PSAA’s 2022 audit services procurement, covering the audits of 2023/24 to 2027/28, reflected a significant increase compared to our previous procurement in 2017. The audit industry has faced major challenges in the intervening period. In addition, local audit faces several distinctive difficulties which have resulted in a less competitive market.

The 2022 procurement outcome required a major re-set of total audit fees for the contract period from 2023/24, resulting in a projected increase of 151% on the fees for 2022/23. The actual total audit fee at any individual body is the scale fee set each year plus any fee variations for additional national or local audit requirements, and so it is variable.

In September 2023 PSAA consulted on the proposed scale of audit fees payable by bodies in respect of the audit of 2023/24 accounts. The consultation set out the additional elements to be included in the scale fees for individual opted-in bodies, including additional audit requirements and the adjustment of 151% for the procurement outcome.

In consulting on the fee scale each year, we consider the factors which may influence the audit work needed. This may include changes in audit requirements, for example revised auditing or financial reporting standards. If the volume of 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 vary accordingly. For audits from 2024/25 the audit contracts also require us to consider changes in inflation.

We appreciate that an increase in audit fees poses a significant funding challenge for local bodies already facing a daunting range of financial pressures. We have raised this concern with DLUHC.

PSAA will provide 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 will meet regularly with the public sector leads at each contracted firm and ensure that matters concerning opted-in bodies are brought to their attention.

In addition, PSAA will:

• robustly assess and validate every fee variation proposal;
• work closely with DLUHC and other key stakeholders to identify ways to address the concerns about fees expressed by the Redmond Review;
• invite the S151 Officer and Audit Committee Chair (or equivalents) to participate in Local Audit Quality Forum events (or similar e.g. webinars) on relevant topics, which are free of charge to opted-in bodies;
• undertake research on technical developments related to local audit;
• attend meetings of the various treasurers’ societies and S151 officer meetings to share updates on our work, discuss audit-related developments, and listen to feedback; and
• maintain contact with those registered audit firms that are not currently contracted with us, to build relationships and understand their thinking on working within the local audit market.