Published on 20 October 2025
Executive Summary
The local audit system has faced significant challenges since 2019, with a persistent backlog of unaudited accounts and systemic capacity issues. In response, the Government introduced statutory backstop dates and initiated a comprehensive reform strategy, including the establishment of a Local Audit Office (LAO) to streamline oversight, improve audit quality, and enhance transparency. PSAA has actively supported these reforms and continues to collaborate with stakeholders through the newly formed Transition Board.
This report, the first under the second appointing period (2023/24–2027/28), outlines PSAA’s audit contract monitoring approach, which is grounded in the IAASB Framework for Audit Quality. Monitoring focuses on three core areas: adherence to professional standards, compliance with contractual requirements, and effective relationship management.
This report covers activity during the period 1 April 2023 (the commencement date of the contract to deliver the 2023/24 audits) to 30 June 2025 (four months after the statutory backstop date of 28 February 2025). We chose to report the position at this date to align with the completion of the client survey for these audits.
Adherence to professional standards and guidance
Audit quality is assessed by regulatory reviews from the FRC’s Audit Quality Review (AQR) team and the ICAEW’s Quality Assurance Department (QAD). Although routine inspections of local government audits up to 2023/24 were suspended to prioritise backlog clearance, recent inspections of NHS audits concluded most met required standards.
The FRC’s 2025 Annual Review of Audit Quality of the inspection of corporate audits and firm-wide quality control processes reported strong performance among Tier 1 firms, with 90% or more of audits achieving positive outcomes. However, areas such as inventory auditing and group audit oversight remain in need of improvement.
All inspected audits met the required standards for Value for Money (VFM) arrangements. The NAO’s revised Code of Audit Practice, effective from November 2024, introduced new requirements to strengthen the reporting of VFM assessments.
Transparency Reports from the four firms conducting Major Local Audits (Ernst & Young, Forvis Mazars, Grant Thornton and KPMG) confirmed compliance with regulatory expectations, including internal quality monitoring, independence procedures, and staff competency. We did not identify any contractual concerns from these reports.
Compliance with contractual requirements
Within the limits of our remit, we maintain oversight of audit service delivery through structured monitoring of firms’ compliance with contractual obligations and our Terms of Appointment (ToA). Formal quarterly reviews and performance indicators underpin our oversight.
For the 2023/24 audits, firms broadly met expectations, with 427 audit opinions issued by the February 2025 backstop date. However, 33 audits remained outstanding as of June 2025. VFM arrangements commentaries had a continued rise in reported weaknesses, particularly in governance and financial sustainability.
Auditors exercised their statutory powers, issuing 12 formal recommendations and two Public Interest Reports. Objection handling remains a challenge, with only 24% resolved within the six months cited in the Code of Audit Practice. Independence and ethical compliance were generally well managed, with only three minor incidents reported.
All firms demonstrated commitment to social value in line with their contractual commitments, creating over 315 trainee and graduate roles and contributing over 800 volunteer days. Non-audit services were minimal and appropriately assessed for independence risks.
Key Performance Indicators (KPIs) introduced in the new contracts showed mixed results, with strong communication compliance (98%) but underperformance in audit planning and objection resolution. Seven Notifiable Default Notices were issued, with two requiring formal rectification plans.
All firms maintained satisfactory insurance, information assurance, and financial standing. No formal complaints were received under our policy for the 2023/24 audits.
Effective relationship management
We survey opted-in bodies to seek views from Directors of Finance and Audit Committee Chairs on their audit delivery experience as part of our contract monitoring arrangements, and to identify areas for improvement. This vital feedback also informs our discussions with the firms and other key stakeholders involved in local audit in England.
282 bodies responded out of a possible 448 (63%). Of these, 39 had not received their audit opinion by 31 March 2025 and were issued a separate, tailored survey.
We received responses from 193 Directors of Finance (47%) and 118 Audit Committee Chairs (31%) across 257 bodies to the main LGA survey. Results showed improved satisfaction compared to previous years, particularly in audit delivery, timeliness of communication and auditor performance at Audit Committee meetings. Most respondents reported that the audit service met expectations set out in the audit plan. However, concerns remain around fee variation communications, auditor resourcing and the complexity of audit processes.
Additional comments on the wider context of local audit reform highlighted the need for clearer guidance on resolving the audit backlog while maintaining value for money and adapting audit approaches to reflect changes caused by local government reorganisation.
25 bodies (64%) responded to the tailored survey for bodies without an audit opinion by 31 March 2025, including 12 Directors of Finance (31%) and 13 Audit Committee Chairs (38%). Their feedback largely aligned with the main survey, with positive views on auditor communication and their performance at Audit Committee meetings. Respondents also emphasised the need for clearer communication around fees, stronger engagement to maintain confidence in audit integrity and sustainable solutions to rebuild assurance.
Delays to audit opinions being delivered were primarily attributed to prior year issues, with additional factors including finance team resourcing and objections.
Overall reflections
This report provides a comprehensive overview of audit delivery across the first audits under the second appointing period. Despite ongoing system-wide challenges, there are encouraging signs of progress as reflected in stakeholder feedback, but the need for fundamental reform as announced by Government is clear. Continued collaboration and reform remain essential to restoring timely, high-quality local audit and sustaining public confidence.