Sir Tony Redmond, in his review of the effectiveness of external audit and transparency of financial reporting in local authorities, recommended that the current fee structure for local audit be revised to ensure that adequate resources are deployed to meet the full extent of local audit requirements.
To support the implementation of this, the department is providing relevant local government bodies with £15 million in additional funding in 2021/22. This is intended to support affected local bodies to meet the anticipated rise in fees for 2020/21 audits, driven by new requirements on auditors, including the National Audit Office’s Code of Audit Practice 2020, and to enable local authorities to develop standardised statements of service information and costs.
The Redmond Review considered the current processes that the above regulations require the appointing person for principal authorities (Public Sector Audit Appointments Ltd (PSAA)) to follow, both when setting fees and agreeing changes/variations to those fees to reflect increased work for the auditors. The arrangements for smaller bodies are covered in separate regulations.
Sir Tony found that there was an increasing disparity between the scale fees and the amount of work being carried out by auditors, which had led in turn to a large increase in the amount of fee variation requests. Furthermore, the delay in closing a large number of audits of accounts in 2018/19 and 2019/20 had meant that PSAA Ltd were unable to take an informed view on the quantum of the increase that should be included when consulting on the base fee scales for future years.
The Government Response, published on 17 December 2020, made a commitment to take swift action to support market stability and in particular to review regulations to provide the appointing person with greater flexibility to ensure the costs to audit firms of additional work are met and reduce the need for time consuming case by case consideration.
This could include enabling the appointing person to allow fee scales to be set later in the financial year to which the audit relates and enabling the appointing person (subject to appropriate consultation) to set additional fees across groupings of audited bodies in-year where there is clear evidence of additional work that affects those groupings.
We are also consulting separately over 4 weeks seeking views on the most appropriate methodology for allocating £15 million to support affected local bodies meet the anticipated rise in audit fees, driven by new requirements on auditors including the 2020 Code of Audit Practice, and to enable local authorities to develop standardised statements of service information and costs. This consultation can be found here.
Summary of proposals for this consultation:
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