Frequently Asked Questions

Technical audit quality is a measure for the FRC as regulator. The Ethical Standard precludes contracts that contain fees that vary according to a pre-determined measure (for example specifying a date by which an audit opinion must be given).

We monitor the quality of audit services using a package of measures. We work with firms to improve matters where service has been poor, but our contractual options are limited. Our aim is to get to a position where we can replace auditors who do not meet the quality measures within our contracts and are not able to resolve the issues. However, the current shortage makes this very challenging, and is another reason for wanting to strengthen the supplier options available to us in the future.

Our audit contracts from 2023/24 contain a range of new provisions designed to improve service delivery which are summarised below, as per our webinar in March 2022 in which we explained the new features of the contract.

We are currently developing the practical arrangements for contract monitoring aligned to these strengthened provisions.

The measures in the new contract include:

• Firms will be paid when they deliver four predefined audit milestones (each attracting 25% of the scale fee), rather than on a routine quarterly basis unlinked to on the ground delivery:
  • for audit year 2023/24 where the Supplier has not been the Appointed Auditor for the previous audit year not earlier than 1 October 2023, otherwise on the production of the auditor’s annual report for the previous audit year
  • production of the draft audit planning report to the audited body
  • 50% of the supplier’s planned hours in respect of the audited body have been completed
  • 75% of the supplier’s planned hours in respect of the audited body have been completed
• We have introduced KPIs linked to the audit delivery lifecycle and a quarterly contract monitoring review process
• There is a Review Procedure through which we can require a supplier at its own cost to amend its method statement, if the current one does not satisfy their obligations under the contract
• There is a Rectification Plan process which we may invoke if:
  • the supplier fails to comply with its method statement obligations and materially impacts delivery;
  • there is a supplier delay or is reasonably likely to be a delay;
  • the supplier fails to achieve any KPI measure; and/or
  • commits a default that has or may have an adverse effect on the provision of the Services.
• Once agreed by us, the Rectification Plan creates a supplier obligation to implement it, including rectification of past failures.

The fact remains that as now, our statutory sanction of being able to remove auditors from appointments (e.g. for performance or other issues) is largely moot as there is no surplus in the local audit market. As referenced in our press release, we had to go through several procurement stages to get enough capacity to make the appointments which is far from ideal, this would be a surplus of supply and increased competition. In this context neither we nor the system can offer any guarantees on service delivery as our contract management framework is undermined by this capacity issue. What we can guarantee is that PSAA will do all we can to help the system tackle the issues. DLUHC has publicly stated that local audit will take years to fix, and no single action will solve it.

The introduction of IFRS was a government decision in 2007 ‘to improve consistency and comparability’ and ‘to follow private sector best practice’. CIPFA recognises how complicated accounts have become and DLUHC has committed to looking at what can be done to make them more accessible.

Please note that the implementation of IFRS16 has been delayed until 2024, following the CIPFA/LASAAC emergency consultation in March 2022.

Auditors are required to deliver an audit that complies with the NAO Code of Audit Practice, and PSAA’s contracts are let on this basis. Regulation 17(2) of the Local Audit (Appointing Person) Regulations 2015 states that where it appears to PSAA (as the appointing person) that the work involved in a particular audit was substantially more than that envisaged by the scale fee, then a larger fee may be charged.

PSAA has a robust process for reviewing and approving fee variations involving consultation with the audited body, and reviews of firms’ work programmes and audit files to assess proposals for additional fees submitted by auditors.

We have published our draft information paper for 2024/25 audits with the consultation. The information paper sets out our assessment of the impact on fees of changes in standards and provides information on how bodies and auditors can work together to mitigate the amount of additional audit work needed.

Public Sector Audit Appointments Limited (PSAA) is an independent company limited by guarantee incorporated by the Local Government Association in August 2014.

In July 2016, the Secretary of State specified PSAA as an appointing person for principal local government and police bodies for audits from 2018/19, under the provisions of the Local Audit and Accountability Act 2014 and the Local Audit (Appointing Person) Regulations 2015. Acting in accordance with this role PSAA is responsible for appointing an auditor and setting scales of fees for relevant principal authorities that have chosen to opt into its national scheme.

PSAA is staffed by a team with significant experience working within the context of the Regulations to appoint auditors, manage contracts with audit firms, and set and determine audit fees. All these roles are undertaken with a detailed, ongoing, and up-to-date understanding of the distinctive context of a highly regulated service and profession which is subject to dynamic pressures for change.

Find out more in the about us section of this website.

As at March 2023, the nine registered firms are: Azets Audit Services, BDO, Bishop Fleming, Deloitte, EY, Grant Thornton, KPMG, Mazars and PWC.

The ICAEW maintain the list of registered auditors.

Firms are required to comply with the Code of Audit Practice (COAP), and when issuing a disclaimed audit opinion under the COAP they must have regard to the statutory guidance, which sets out that they should use professional judgement. 

The firms have performed work to issue a disclaimer opinion in line with the COAP/statutory guidance, which is why specific fees are appropriate for disclaimed audits. Furthermore, Ministerial statements have said that firms would be paid for work done in good faith.

We will consider what work has been done in total when determining the total audit fee – so if the auditor has not done all the work envisaged when we set the scale fee, the total fee will be adjusted to reflect that. For some audits, the total fee will reflect only the work for the VFM arrangements plus the work that the firm judged to be professionally appropriate to deliver the disclaimed audit opinion in line with the statutory guidance. 

Our fee variation process uses a defined set of categories for our review of  fee variation proposals from auditors. This enables us to consider whether proposals relating to additional audit requirements, are proportionate and comparable. We use these categories in our fee variation statements to bodies. Auditors may, however, choose to use different terminology or groupings in their reporting to bodies.

We chose not to determine fee variations related to the issuing of a disclaimed opinion until MHCLG had confirmed the arrangements for allocating the £49 million additional funding announced in April 2025. MHCLG paid the first funding instalment in June 2026 and set out further information about the allocations in a technical note.

Disclaimer fee variations received for review before the funding announcement were marked TBC when we reported the outcome of our reviews to bodies. We explained this process in our email of 17 December 2024, sent to all bodies and copied to the firms. We will now be writing to bodies in relation to the disclaimer fee variations we have previously reported as TBC.

We will communicate the final fee position for each body once we have determined it. When we determine a fee, it becomes statutorily payable. 

Additional fees for this work will depend heavily on the specific circumstances of each audited body, including its level of preparedness, the completeness and accuracy of accounting records, and the quality of supporting documentation and evidence. We anticipate a significant impact in the first year, which is unlikely to recur in subsequent years.

As part of their planning process, your audit firm should be able to provide an estimate of the likely costs for budgeting purposes. At this stage, there is insufficient certainty for PSAA to incorporate these amounts into scale fees.

Once appointed, auditors are independent and PSAA is unable to direct their work.

The Ethical Standard issued by the FRC prohibits contingent fee arrangements. This includes any agreement made at the start of an engagement where a set amount or percentage is payable to the firm upon the occurrence of a specified event or the achievement of an outcome, or a penalty imposed for not meeting a target.

Before the introduction of backstop legislation, there was no statutory deadline for completing audits.

The establishment of the Local Audit Office (LAO) will bring local audit under the oversight of a single organisation dedicated to supporting local audit bodies. We believe this will provide a much stronger framework and will hopefully ensure more proportionate audits and enable a holistic approach to managing the local audit system.