Audit Quality Monitoring Report 2020/21

Effective relationship management

  1. Effective relationship management is a key component of audit quality. Satisfaction surveys are the most effective way of obtaining this information.
  2. We commissioned for a third year the LGA’s Research & Information team to administer the survey to provide assurance about independence and confidentiality. We sought the views of both CFOs and Audit Committee Chairs, recognising the importance of the auditor’s relationships with both management and Those Charged with Governance. We are mindful of the volume of data returns that bodies are required to complete, and so used a short list of survey questions consistent with that for 2019/20. We surveyed all our bodies and received responses from 113 (24%) Audit Committee chairs and 183 (39%) Finance Directors. We reported the survey results in July 2022, and a full copy can be found on our website: PSAA Quality of Audit Services 2020-21 Survey.

Survey Results

  1. The survey results reflected the current challenges, and respondents expressed their concerns about the wider local audit regime. The issues documented in the Redmond Report continued to impact on audit delivery and the challenges posed by the Covid pandemic again contributed to the position. With financial statements reflecting increasingly complex structures and transactions and regulatory demands increasing, there is great pressure on the preparers of accounts and a shortage of auditors with the knowledge and experience to deliver the audits of statements of accounts to the expectations of the professional regulators within the timeframe expected. A significant number of 2019/20 audits remaining unfinished, have added to the pressures on audit delivery.
  2. Respondents also expressed their concerns about the factors leading to delays in audit opinions including the shortage of experienced auditor resources; the extent of the audit work now required on property and pension valuations; the levels of additional review and scrutiny that firms are building into their processes in response to regulatory challenge; and the format and complexity of the accounts produced under the current CIPFA/LASAAC code.
  3. Communication is a cornerstone of relationship management, and we asked specific questions on communications as well as the ongoing impact of the pandemic. This year’s results show that there is still room for improvement. More than half of Finance Directors (57%) reported that the need to delay the audit had not been communicated on a timely basis; this is an important requirement for audited bodies managing their own resources and priorities.
  4. As last year around two-thirds of respondents thought that communications generally during the audit were sufficiently frequent. Just under half of finance directors (49%) and two thirds of audit committee chairs (63%) reported that communications were sufficient to provide a “no surprises” basis. Remote working continued at most audits for 2020/21 as a consequence of the pandemic. Two thirds (66%) of finance directors agreed that the audit team worked effectively with officers to deliver a remote audit, and around three quarters (72%) of finance directors strongly agreed or tended to agree that the auditor was able to communicate requirements for remote working to ensure a smooth transition from face to face communication.
  5. The shortage of sufficiently experienced auditors is an acknowledged systemic issue. As last year we sought feedback on audit teams. Similar to last year the satisfaction with Key Audit Partners’ skills was highest at 79% (82%), followed by managers at 78% (77%) and audit team members at 56% (58%). Also consistent with last year was that the lowest ratings of 39% and 36% were for those outside the local team (auditors’ experts and firm technical team members). We again asked some relationship specific questions, and this year 56% of finance directors felt their auditor could be approached as a sounding board when required compared with 66% (2019/20) and 74% (2018/19).
  6. We asked for views on the usefulness of the VFM arrangements commentary which was introduced in the NAO Code of Audit practice as part of the audit for 20/21 audits. For those audited bodies who had received a VFM arrangements commentary by the time of our survey (182 of 294 respondents) 85% of audit committee chairs and 60% of finance directors reported that they found the commentary useful. A number of respondents highlighted how the audit could add value by sharing good practice. We will track this response in future years.
  7. There was a small increase in the number of audit committees that have met privately with auditors from 20% to 28%. Private sessions are widely acknowledged to contribute positively to the organisation’s governance arrangements and specifically to the relationship between the auditor and the committee and are highlighted in CIPFA’s June 2022 position statement on Audit Committees.
  8. We have shared survey information with firms to assist in improving the quality of audit services. The nature of the survey means that it is difficult to draw direct comparisons between firms but there is work to be done by all to achieve improvements. The systemic issues referred to by many will need to be addressed if clients’ concerns to receive a timely quality audit are to be addressed.

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