Terms of appointment and further guidance 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  The Local Audit (Appointing Person) Regulations 2015 require that the scale fee for an audited body must be specified before the start of the financial year to which it relates. PSAA will notify audited bodies of the scale fees when they have been specified.

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

  • the point at which the audit planning report is presented to those charged with governance; and
  • on conclusion 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, including audit related services, (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’s 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 and referenced in the Statement of Responsibilities);
  • what is included in the fee and what is not included;
  • the process for agreeing the proposed fee with PSAA if it varies from the published scale fee; and
  • the processes for notifying and determining any subsequent proposed fee variations which may arise 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 audit planning report, auditor’s annual audit report (Annual Audit Letter for 2019/20 and earlier years) or ISA260 report for verifying the communication of fee information to those charged with governance. This will be reviewed on a sample basis and reconciled to audited financial statements and invoices and WIP returns as required. The firm’s PSAA Contract Manager will be notified of the review sample.

Audit fee variations

5.8  PSAA has the power (s17 of the Local Audit (Appointing Person) Regulations 2015) (AP Regs) 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. To comply with the AP Regs each fee has to be determined on an individual basis.

5.9  It is a matter for the auditor to decide the work necessary to complete the audit, and subject to final determination by PSAA, to provide a full explanation and seek to agree a variation to the scale fee with the audited body. The auditor must give notice to the audited body of the proposed fee variation and the reasons. Where possible we would expect such information to be provided in planning and/or audit completion communications.

5.10  A process note for requesting a fee variation is included at Appendix 3.

Work in progress and fee information

5.11  For all local audits, firms must complete work in progress (WIP) returns. PSAA will request completion of these returns at the following quarter ends June, September, December, and March.

5.12  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 quarterly instalments for the relevant year of account in September, December, March and June. PSAA will update WIP returns to include approved fee variations and request further payments or pay firms as audits are finalised. The remuneration is based on all work carried out under the Code. The estimated contribution projected to the end of March in the fourth quarter is expected to vary by no more than 5 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 variations proposals will be required to be submitted for any proposed variations to scale fees in line with set methodology and timetable.

5.14  Separate maximum hourly rates for grades of staff have been set for calculating the cost of audit work which is additional to the scale fee set (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 and made a determination can be invoiced or refunded to the audited bodies and included in a subsequent WIP return. PSAA will respond in line with set methodology and timetable.

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 examine billing records. Auditors should ensure adequate accounting records are maintained and that they comply with any requests from PSAA or its internal or external auditors.

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. PSAA will send its list of audited body contact details for the bodies to which they are appointed (Director of Finance) for confirmation by firms on a quarterly basis. PSAA uses this contact information for its formal communications with opted-in bodies. PSAA has an alternative information source for Chief Executives and Audit Committee Chair appointments.

5.19  PSAA also publishes a directory of auditor appointments on its website, including the relevant Key Audit Partner and their contact details. Audit firms are required to provide details on a quarterly basis of the Key Audit Partner and audit manager for each body 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. If PSAA is not notified or consulted then the indemnity may not apply.

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 the allocation of Key Audit Partners with individual 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 7 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 matter, which 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 remains 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 8.

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 arrangements

5.32  PSAA is committed to ensuring good quality audit services are provided to opted-in bodies. Its holistic approach considers three strands:

  • adherence to professional standards and guidance;
  • compliance with contractual arrangements; and
  • relationship management.

5.33  PSAA’s compliance requirements may be reviewed and reported in audit quality monitoring reports.

5.34  As part of its 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;
  • the information provided in firms’ Transparency Reports; and
  • the results from satisfaction surveys sent to audited bodies.

5.35  Firms must cooperate with PSAA audit quality monitoring arrangements. Appendix 9 provides a summary. The audit quality monitoring arrangements enable PSAA to provide assurance to stakeholders about the quality of work delivered by its audit suppliers.

Responding to information requests

5.36  Auditors are not subject to the Freedom of Information Act 2000 (FoIA) in relation to information held for audit purposes. However, PSAA is subject to FoIA. In those cases where a request for information is received by PSAA and it involves information provided by an auditor, PSAA will consult the auditor to discuss the information request.

5.37  Auditors are subject to the Environmental Information Regulations 2004 (EIR) in relation to information held for audit purposes. 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.

5.38  Information covered by the EIR must be disclosed unless an exception applies. The EIR overrides all other statutory restrictions on disclosure. If the request relates to environmental information the restrictions on disclosure in the LAAA 2014 do not apply but the auditor must consider the specific exceptions to disclosure in the EIR itself including the mandatory restriction on disclosing personal data.

5.39  If disclosure is not permitted by legislation or 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

5.40  PSAA uses the following general e-mail boxes for communication with auditors.

Contact Email address
Audit regulation mailbox: used for matters related to the delivery of audit services [email protected]
Auditor Appointments mailbox: used for matters related to auditor appointments [email protected]
Fee variations mailbox: used for matters related fee variations [email protected]
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