We have received firms’ capacity assessments and cost estimates for rebuilding assurance work. The firms used PSAA’s standard templates to estimate the total cost for each affected audit, including the expected work, hours, staff grades and timing. Firms should share their estimates and supporting assumptions with the relevant bodies, and we will share the estimates with MHCLG. This gives bodies early sight of expected costs and allows them to discuss the scope and assumptions with their auditor.
We will use the estimates as a baseline when reviewing fee variations already received and any future proposals. We will distinguish between central project costs, such as firm-wide methods, guidance and training, and work carried out on an individual body’s audit.
Our review will include:
- a scope check to exclude firm-wide work already covered by the central project cost fee variation;
- an estimate check to compare the proposal with the expected work, hours, staff grades and timing;
- an evidence check to confirm what work was completed, why it was needed and how the cost was calculated; and
- a cross-firm comparison of similar work, taking account of body type, audit complexity, the number of disclaimed years and the work undertaken. Cross-firm averages will act as a challenge indicator.
We will investigate significant differences and require firms to explain and evidence them. We will also consider the body’s comments. If the evidence does not support all or part of a proposal, we will seek further information and reduce or reject any unsupported amount. We will exclude costs already recovered through the central project cost fee variation before determining the fee.