Source · Select Committees · Housing, Communities and Local Government Committee
First Report - Financial Reporting and Audit in Local Authorities
Housing, Communities and Local Government Committee
HC 59
Published 24 November 2023
Recommendations
8
Deferred
Para 47
Ensure local authority account purposes are clearly set out and accessible to stakeholders.
Recommendation
The Government must ensure that the purposes of local authority accounts are clearly set out in government policy and accessible to all relevant stakeholders. This should be done before the next accounts production cycle for the year ended 31 March …
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Government Response Summary
The government agrees there is merit in issuing a policy statement to clearly set out the purposes of local authority accounts. However, this will be done as part of a longer process with CIPFA and FRC, with an update provided ahead of the 2025-26 financial year, missing the recommended 31 March 2024 deadline.
Ministry of Housing, Communities and Local Government
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15
Deferred
Para 74
Quickly implement proposed actions to clear audit backlog and provide regular progress updates.
Recommendation
The Department must move quickly to clear the audit backlog and implement its proposed actions by the end of the calendar year 2023. Until the actions have been fully implemented, the Department should provide us with updates on its progress …
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Government Response Summary
The government is working to clear the backlog with a consultation beginning in February, but does not commit to the 2023 deadline. It will provide updates at key junctures, and while auditors already provide reasons for modified opinions, the government is considering how to ensure consistent messaging regarding fault and will keep the recommendation for specific fault identification under review.
Ministry of Housing, Communities and Local Government
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23
Deferred
Para 110
The Department for Levelling Up, Housing and Communities must immediately initiate a review into existing...
Recommendation
The Department for Levelling Up, Housing and Communities must immediately initiate a review into existing legislation that places requirements on the contents and format of local authority accounts. The review should refer to the intended purposes and users of the …
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Government Response Summary
The government commits to reviewing existing legislation on local authority accounts to reduce complexity and ensure usefulness, but states this will not be an immediate priority due to the audit backlog and will instead form part of long-term reform work.
Ministry of Housing, Communities and Local Government
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26
Deferred
Para 117
The Department, in consultation with the Chartered Institute of Public Finance and Accountancy, must resume...
Recommendation
The Department, in consultation with the Chartered Institute of Public Finance and Accountancy, must resume the introduction of a standardised statement of service information and costs for local authority accounts as soon as actions to address the audit backlog have …
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Government Response Summary
The government remains committed to a standardised statement but defers its introduction until the audit backlog is cleared, citing concerns about adding new requirements at this time. CIPFA will first focus on developing better performance reporting, which could be a precursor to the statement.
Ministry of Housing, Communities and Local Government
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27
Deferred
Para 120
Introduce legislation to decouple local authority accounts from Pension Fund statements
Recommendation
Local authority accounts are currently required by legislation to include Pension Fund statements, but this has made the accounts longer, more complicated, and less useful to users. The Government should introduce legislation to decouple local authority accounts from these Pension …
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Government Response Summary
The government commits to considering the recommendation to decouple local authority accounts from pension fund statements as part of a broader review of legislation it has already committed to undertake.
Ministry of Housing, Communities and Local Government
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Conclusions (9)
1
Conclusion
Deferred
Para 21
The publication of local authority accounts and local authority audit have a vital role to play in supporting local democracy and accountability. However, their capability to fulfil this vital role is limited because stakeholders who might want to use the information in the accounts encounter significant challenges in finding and …
Government Response Summary
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after clearing the audit backlog and alignment with CIPFA's Accounting Code, committing to provide an update by the 2025-26 financial year.
2
Conclusion
Deferred
Para 26
There is currently no shared view of the purposes of local authority accounts and who should be using them. This has made it difficult to decide what the format and contents of the accounts, and their accompanying audit outputs, should be so that accounts fulfil their role in supporting local …
Government Response Summary
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after clearing the audit backlog and alignment with CIPFA's Accounting Code, committing to provide an update by the 2025-26 financial year.
3
Conclusion
Deferred
Para 30
We believe that the first purpose of local authority accounts is: To provide a credible public financial record that can be relied upon, and which can be used as a point of comparison for other financial information to assess its credibility and accuracy.
Government Response Summary
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
4
Conclusion
Deferred
Para 34
We believe that the second purpose of local authority accounts is: To enable council taxpayers, businesses, central government, and other sources of funding to understand what money the local authority has received (including council tax, government grants and borrowing) and how the authority has used its resources, so they can …
Government Response Summary
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
5
Conclusion
Deferred
Para 39
We believe that the third purpose of local authority accounts is: To enable residents, service users, and councillors to understand the value for money offered by the authority’s spending, so that they can scrutinise the economy, efficiency, effectiveness, and equity of services or programmes.
Government Response Summary
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
6
Conclusion
Deferred
We believe that the fourth purpose of local authority accounts is: To enable councillors and officers inside the authority to understand the financial activity, financial position, financial sustainability, and resilience of the authority, so that they can make informed decisions and run that authority efficiently and effectively. (Paragraph 42) Financial …
Government Response Summary
The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a policy statement, with an update provided ahead of the 2025-26 financial year.
7
Conclusion
Deferred
Para 45
We believe that the fifth purpose of local authority accounts is: To enable the public, oversight bodies and central government to understand the financial situation and any actual or potential financial issues affecting the authority, so that they can make informed decisions about what actions to take.
Government Response Summary
The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a policy statement, with an update provided ahead of the 2025-26 financial year.
22
Conclusion
Deferred
Para 109
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned with the intended purposes of local authority accounts. Some statutory overrides can be beneficial by reducing the complexity of the accounts, but many add new requirements to the disclosures in the accounts. Additional requirements in …
Government Response Summary
The government recognises that statutory overrides can add complexity to accounts and commits to reviewing existing overrides and relevant legislation to ensure their value outweighs complexity. However, this review will be deferred until after the audit backlog is cleared.
25
Conclusion
Deferred
Para 116
The Government previously accepted the Redmond Review’s recommendations to introduce a standardised statement of service information and costs for local authority accounts. Implementing these recommendations would constitute an important step to improving the clarity and content of local authority accounts. 38 Financial Reporting and Audit in Local Authorities However, the …
Government Response Summary
The government remains committed to introducing a standardised statement but explains that implementation is delayed until the audit backlog is cleared to avoid additional burdens on auditors, while CIPFA develops interim performance reporting.