Terms of appointment and further guidance 1 April 2018

THIS GUIDANCE HAS BEEN SUPERSEDED.
PLEASE REFER TO THE VERSION DATED 1 JULY 2021.

 

5. Other matters

5.1  This section covers any other requirements that are relevant to auditors, including:

  • audit fee information;
  • audit fee variations;
  • work in progress and fee information;
  • contact information;
  • indemnities;
  • key audit partners;
  • cooperation with other auditors;
  • complaints;
  • audit quality monitoring;
  • responding to information requests; and
  • public interest whistleblowing.

a

Audit fee information

5.2  Auditors are required to issue a planning (fee) letter to all audited bodies for the audit of accounts for the year ending the following 31 March. The letter must detail the published scale fee and indicate any proposed variations to this and the indicative certification fee, and outline the proposed work programme including any planned pieces of risk-based value for money work. The letter should be issued to the audited body, and submitted to PSAA in line with the timetable notified by PSAA. This will normally be one month after the start of the financial year. The planning letter should be submitted to PSAA via [email protected]

5.3  Auditors must formally report the fee to audited bodies at two stages during the audit cycle:

  • the point at which the initial audit plan is presented to those charged with governance; and
  • on completion of the audit.

5.4  At both of these stages, the reported fee must be broken down into two headings:

  • code audit work; and
  • any non-Code work (or a statement to confirm that no non-code work has been undertaken for the body).

5.5  Both communications should give comparative fee information. At the planning stage, the auditor should compare the proposed fee with the prior year actual fee and the published scale fee. At the completion stage, the auditor should compare the proposed final fee with the fee proposed at the planning stage and the original scale fee. Auditors must provide an explanation for all variances.

5.6  When reporting the proposed fee for the audit, auditors must make clear to those charged with governance:

  • what the specific factors are which the auditor has taken into account in proposing the fee (particularly the risk assessment);
  • the assumptions upon which the fee is based in terms of, for example, the standard of the body’s control environment, coverage of internal audit, quality of working papers (these are the assumptions taken account of in the process of setting the scale audit fees as set out in the annual Work Programme and Scale of Fees);
  • what is included in the fee and what is not included; and
  • the processes for agreeing fee variations with PSAA if circumstances change or the assumptions upon which the fee is based are not met.

5.7  For contract monitoring purposes PSAA will use the information provided in the planning (fee) letter and annual audit letter for verifying the communication of fee information to those charge with governance. If fee information is not contained in the annual audit letter then PSAA will require copies of the alternative communications (e.g. ISA260 reports to those charged with governance).
 

Audit fee variations

5.8  PSAA has the power to determine the fee above or below the scale fee where it considers that substantially more or less work was required than envisaged by the scale fee. PSAA may therefore charge a fee which is larger or smaller than the scale fee to reflect the work that auditors need to do to meet their statutory responsibilities. PSAA will do this on the basis of the auditor’s assessment of risk and the scale and complexity of the audit at a particular body.

5.9  It is a matter for the auditor to decide the work necessary to complete the audit and, subject to approval by PSAA, to seek to agree a variation to the scale fee with the audited body providing a full explanation. PSAA will normally expect to approve a proposed variation to the scale fee where this is agreed by the auditor and the audited body. The auditor must give notice to the audited body of the proposed fee variation and the reasons. The scale fee already reflects an assessment of audit risk and complexity. Therefore, we expect variations from the scale fee to occur only where these factors are significantly different from those identified and reflected in the previous year’s fee. A flowchart detailing the fee variation process is included at Appendix 3.
 

Work in progress and fee information

5.10  For all local audits, firms must complete work in progress (WIP) returns.

5.11  PSAA will use the published scale fees to calculate the amount payable to PSAA or payable to the firm in accordance with the remuneration rates within each firm’s contract(s). The amounts to be paid to or by PSAA will be made in four equal instalments, updated for the final position per the March WIP return. The remuneration is based on all work carried out under the Code. The WIP information will also be used to consider the reasonableness of the explanations for any variances to the prescribed scale fee.

5.12  The estimated contribution projected to the end of March in the fourth quarter is expected to vary by no more than 1 per cent from the figure provided in the WIP return at the end of the second quarter. Explanations are required for all variances to this performance target.

5.13  Fee variation templates will be required to be submitted with the WIP returns for any proposed variations to scale fees or indicative certification fees.

5.14  In charging for additional work (i.e. in excess of the scale fee), firms should apply hourly rates not exceeding the maxima specified by PSAA for grades of staff (see Appendix 4).

5.15  PSAA will review the explanations for the proposed fee variations and inform the firm whether or not they are acceptable. Only proposed fee variations for which PSAA has accepted the explanation can be invoiced or refunded to the audited bodies and included in a subsequent WIP return. PSAA will review and respond to any proposed variations within 15 working days of submission of the WIP return.

5.16  Other WIP returns are used for determining the final fee on completion of the audit and for financial management purposes. Performance against expectations on both fees and delivery of work is reported through the contract monitoring process.

5.17  It may occasionally be necessary for PSAA or its external auditor to visit firms’ offices to examine billing records. Auditors should ensure adequate accounting records are maintained and that they comply with any requests from PSAA or its external auditor.
 

Contact information

5.18  For the purposes of its statutory responsibilities relating to auditor appointments and fees, PSAA maintains a list of information regarding opted in bodies. Audit firms are required to update and submit to PSAA on a regular basis audited body contact details for the bodies to which they are appointed (Chief Executive and Director of Finance). PSAA uses this contact information for its formal communications with opted-in bodies.

5.19  PSAA also publishes a list of auditor appointments, including the relevant engagement lead and their contact details, on its website. Audit firms are required to update and submit to PSAA on a regular basis the engagement lead and audit manager for the bodies to which they are appointed.
 

Indemnities

5.20  PSAA will indemnify auditors against the first £50,000 of external charges, losses, expenses and liabilities properly incurred and not otherwise recoverable, arising out of the exercise by the auditor of certain of their statutory functions as detailed in Appendix 5. Full details are specified in the audit contracts.

5.21  Auditors must notify PSAA promptly via [email protected] as soon as they are aware of any circumstances which are reasonably likely to give rise to a claim as this is a condition of the cover.
 

Key Audit Partners

5.22  Firms must ensure that an engagement lead at a local audit has been authorised as a Key Audit Partner by the Recognised Supervisory Bodies.

5.23  Firms are not required to consult on engagement leads with authorities but are encouraged to do so.
 

Cooperation with other auditors

5.24  Auditors should cooperate with other external auditors as set out in the Code, AGN01 (the NAO Auditor Guidance Note – General Guidance Supporting Local Audit), have regard to any relevant NAO guidance and the requirements of the RSBs.

5.25  Outgoing audit firms should cooperate with incoming audit firms. Appendix 6 sets out PSAA’s expectations of firms on handover of a PSAA audit appointment.

5.26  Should a difference of opinion arise between the outgoing and incoming auditor, and this is likely to result in a qualification of the auditor’s opinion or the issuing of a public interest report, the firms should meet to discuss the issues arising. This matter should also be reported to PSAA via [email protected].
 

Complaints

5.27  Under the Local Audit (Appointing Person) Regulations 2015 PSAA has a duty to design and implement systems to resolve disputes or complaints from local auditors, opted in authorities and local government electors relating to audit contract and the carrying out of audit work by auditors it has appointed.

5.28  Complaints about audit firms should be dealt with, in the first instance, under the firms’ complaints procedures. PSAA will only consider a complaint if it has been considered by the relevant firm, and has been through all appropriate complaint handling stages. Only if the complaint remained unresolved will it be passed to PSAA.

5.29  PSAA will not investigate complaints about an auditor’s professional judgements. The complaints procedure is set out in Appendix 7.

5.30  Firms are required to report any complaints upheld to PSAA on a quarterly basis. PSAA will report any upheld complaints against audit firms in the quarterly monitoring reports.

5.31  Complaints may also be received by the RSBs (recognised supervisory bodies). A memorandum of understanding has been agreed with the RSBs to ensure that complaints are dealt with by the body most appropriate to deal with them. In concluding or dealing with a complaints investigation PSAA may pass their findings to the relevant RSB.
 

Audit quality monitoring

5.32  PSAA defines audit quality for reporting purposes as compliance with both professional standards and our requirements. Compliance with any of the requirements set out in this document and supporting appendices may be reviewed and reported in our audit quality monitoring reports.

5.33  As part of our audit quality monitoring programme PSAA will consider:

  • firms’ performance against a range of contract performance indicators;
  • firms’ compliance with their specified method statements;
  • the results of audit inspections by the FRC’s Audit Quality Review (AQR) team and the ICAEW Quality Assurance Department; and
  • the results from satisfaction surveys sent to audited bodies.

5.34  Firms must cooperate with PSAA audit quality monitoring programme. The programme is the principal means by which PSAA obtains assurance on the quality of the work of the firms. It also allows PSAA to provide assurance to stakeholders about the quality of work delivered by the audit firms it has contracts with.
 

Responding to information requests

5.35  Auditors are not subject to the Freedom of Information Act 2000 (FoIA) in relation to information held for audit purposes but are subject to the Environmental Information Regulations 2004 (EIR) in relation to this information. The EIR are widely cast and apply to any information that has some connection with environmental matters, for example development agreements, waste contracts, administrative measures (plans, programmes and policies) related to environmental matters, and cost-benefit analyses and assumptions used within them. Any emails, reports, briefings, contracts, legal advice, notes of telephone conversations, meeting minutes or other documents containing or relating to environmental matters could be covered by the EIR.

5.36  Information covered by the EIR must be disclosed unless an exception applies. The EIR overrides all other statutory restrictions on disclosure. If the information is not environmental information, then confidentiality restrictions in legislation impose restrictions on its disclosure.

5.37  If disclosure is not permitted by legislation and where it would be likely to cause prejudice to audit functions, it is a criminal offence to disclose the information. Auditors should seek legal advice if they are unsure whether it is appropriate to disclose or withhold information in response to an information request.
 

Contacts

5.38  PSAA uses the following e-mail boxes for communication.

Contact Email address
Audit regulation mailbox [email protected]
Auditor Appointments mailbox [email protected]
Planning letters mailbox [email protected]
Annual audit letters mailbox [email protected]
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