Audit Contract Monitoring Report 2023/24

Audit environment in context

1. Since 2019 there has been growing concern about the backlog of unaudited local government accounts and a local audit system infrastructure unable to cope with the demands placed on it. Our written evidence to the Levelling Up, Housing and Communities Committee inquiry on Financial Reporting and Audit in Local Authorities in April 2023 provides a short history of how the situation developed.
2. The Government announced in July 2024 that an overhaul of the local audit system was needed to deliver the reforms required ‘to enable taxpayers to get better value for money’, a commitment that we strongly supported.
3. The announcement introduced statutory backstop dates for all audit years up to 2027/28 including 13 December 2024 for audits up to 2022/23, and 28 February 2025 for 2023/24 audits. Where an auditor was unable to obtain sufficient evidence for the audit they disclaimed their opinion, and where necessary VFM arrangements commentaries could cover multiple years. Where an audit has been disclaimed it may take several years before an auditor will be able to give an unmodified opinion.
4. Revisions to the Accounts and Audit Regulations and the Code of Audit Practice laid in September 2024 gave legal effect to backstop measures to deal with the backlog.
5. MHCLG issued its plans for local audit reform in April 2025 following a consultation to which we submitted a response. This included the establishment of a Local Audit Office (LAO) to oversee local audit, to simplify and streamline the current fragmented system, and to ensure efficiency, transparency and value for money. The LAO will have five strategic responsibilities, including coordinating the audit system, managing contracts, setting the Audit Code of Practice, overseeing quality, and issuing national reports on the health of local audits. 
6. MHCLG established the Local Audit Liaison Committee (LALC) to co-ordinate the work of the local audit system to resolve the issues impacting local audit. We were a member of the LALC until MHCLG decided to disband the Committee and its replacement, the Transition Board, brings together key local audit stakeholders, including PSAA, to support the implementation of the reforms.
7. We are committed to working proactively with all system stakeholders to address the challenges and ongoing concerns related to local audit, and supporting the establishment of the LAO which will take on the appointing person responsibilities of PSAA once created, potentially as early as Autumn 2026, with resources transferring to the new organisation swiftly thereafter.
8. The English Devolution and Community Empowerment Bill was published on 10 July 2025 and includes legislation to reform the local audit system and establish the LAO. The local audit overhaul strategy provides a clear vision for local audit and its users, proposals for simplified and proportionate financial reporting, improvements to the market’s capacity and capability, and ways to build strong relationships between local bodies and auditors.

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