Recommendations & Conclusions
34 items
2
Conclusion
Eleventh Report - Local auditor reporti…
There is a pressing risk of market collapse due to an over reliance on a small number of audit firms and significant barriers to entry. Only eight audit firms have the specialist knowledge and accreditation needed to audit local authorities. Currently, the market is dominated by just two firms, which …
Government response. 3.1 The government agrees with both the Committee’s recommendations. Target implementation date: September 2021 3.2 The government agrees a decision by firms to withdraw from local audit could pose a risk to the future sustainability of the market. In the …
HM Treasury
3
Conclusion
Eleventh Report - Local auditor reporti…
The commercial attractiveness to audit firms of auditing local authorities has declined. Audit firms bid for the current contracts to audit local authorities in 2017, but the work involved has increased significantly in response to well-publicised problems in the corporate sector. Fees now bear little relation to the costs audit …
Government response. 3.1 The government agrees with both the Committee’s recommendations. Target implementation date: September 2021 3.2 The government agrees a decision by firms to withdraw from local audit could pose a risk to the future sustainability of the market. In the …
HM Treasury
4
Conclusion
Eleventh Report - Local auditor reporti…
The rapidly diminishing pool of suitably qualified and experienced staff increases the risks to the timely completion of quality audits. There are serious shortfalls in the number of specialists which audit firms rely on to carry out audits of local authorities. To maintain accreditation, audit firms’ key audit partners must …
Government response. 4.1 The government agrees with the Committee’s recommendation. Target implementation date: by end of 2021 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local …
HM Treasury
5
Conclusion
Eleventh Report - Local auditor reporti…
We are not convinced that the recently announced new local audit arrangements will meet the pressing need for effective system leadership now. In May 2021, the Department announced that the system leader for local government audit will be the new Audit, Reporting and Governance Authority (ARGA), the new regulator replacing …
Government response. 5.1 The government agrees with the Committee’s recommendation. Target implementation date: by end of 2021 5.2 The government recognises the need for effective system leadership now. The department’s Spring Update set out the responsibilities the Audit, Reporting and Governance Authority …
HM Treasury
6
Conclusion
Eleventh Report - Local auditor reporti…
Unless local authority accounts are useful, relevant and understandable they will not aid accountability. Changes in auditing standards, such as on auditing pensions and grant distribution, have required considerable extra audit time. Some local authorities also have increasingly complex financial arrangements. The more property investments a local authority holds, the …
Government response. 6.1 The government agrees with the Committee’s recommendation. Target implementation date: September 2021 6.2 The government agrees and is clear that local accountability must be at the heart of local government financial reporting. To deliver on this work will require …
HM Treasury
1
Conclusion
Eleventh Report - Local auditor reporti…
On the basis of a report by the Comptroller and Auditor General,1 we took evidence from the Ministry of Housing, Communities & Local Government (the Department); Public Sector Audit Appointments Ltd (PSAA); audit firms EY and Grant Thornton; and from Sir Tony Redmond, author of Independent Review into the Oversight …
HM Treasury
7
Conclusion
Eleventh Report - Local auditor reporti…
We asked the Department to explain the causes of delays to audit firms’ audits of local authorities, given these had begun before the impact of COVID-19. The Department indicated that there was no single cause for the delays in completing audits of local authorities from 2018–19 onwards, and that a …
Government response. 2021. This is the government’s response to the Committee’s report. Relevant reports • NAO report: Overview of English Rail System – Session 2021-22 (HC 1373) • PAC report: Overview of English Rail System – Session 2021-22- (HC 170)
HM Treasury
8
Conclusion
Eleventh Report - Local auditor reporti…
The deadline for local authorities to publish their accounts has changed over time, being 30 September up to 2017; 31 July for 2018 and 2019; and for 2020 the original 31 July deadline was extended to 30 November.16 Grant Thornton felt that the deadline of 31 July each year was …
Government response. 1.3 As part of the government’s response to the Redmond Review, the Ministry for Housing, Communities and Local Government (the department or MHCLG) has taken action to help improve the timeliness of auditor reporting, extending the publication deadline for audited …
HM Treasury
9
Conclusion
Eleventh Report - Local auditor reporti…
We pressed the Department on when we would see improvements in the timeliness of local authorities publishing their audited accounts. The Department felt that it would not be possible to bring timeliness back on track in one audit cycle in 2021, given the impact of Covid-19. It explained that it …
Government response. 1.3 As part of the government’s response to the Redmond Review, the Ministry for Housing, Communities and Local Government (the department or MHCLG) has taken action to help improve the timeliness of auditor reporting, extending the publication deadline for audited …
HM Treasury
10
Conclusion
Eleventh Report - Local auditor reporti…
High-quality audits of local authority financial statements are important to assure taxpayers, stakeholders, and users of the accounts, that local authority accounts have been properly prepared, and to maintain trust in audited accounts.21 The FRC is the independent body responsible for monitoring the quality of major local authority audits. The …
HM Treasury
11
Conclusion
Eleventh Report - Local auditor reporti…
The Department said it considered itself to be the steward of the system for auditing local authorities and acknowledged that it was important to maintain the quality of audits of local authorities.24 Audit firm EY told us that it safeguarded quality before deadlines.25 It explained that it would not provide …
HM Treasury
12
Conclusion
Eleventh Report - Local auditor reporti…
Sir Tony Redmond emphasised the need for much greater transparency in the financial reporting of local authorities, to turn accounts that were impenetrable to the public into simpler information that the public wanted to know about. His review had recommended that the Chartered Institute of Public Finance and Accountancy (CIPFA) …
HM Treasury
13
Conclusion
Eleventh Report - Local auditor reporti…
Durham University highlighted that local authority accounts were an important means of democratic accountability, and could cover issues of financial sustainability, financial and service resilience and equity, and that work was needed to resolve questions of what local electors should be getting from accounts and the functions that accounts should …
HM Treasury
14
Conclusion
Eleventh Report - Local auditor reporti…
The audit firms EY and Grant Thornton told us that some local authorities had increasingly complex financial arrangements, for example in their borrowings, investments and financial instruments.34 EY explained that the more investment properties a local authority held, the more difficult it had become to arrive at valuations for the …
HM Treasury
15
Conclusion
Eleventh Report - Local auditor reporti…
Sir Tony Redmond told us that local authorities considered that audits give too much attention to the valuations relating to pension funds and property. He added that local authorities believed the work that auditors had to carry out on valuations was excessive, as they argued that these valuations did not …
HM Treasury
16
Conclusion
Eleventh Report - Local auditor reporti…
The Department agreed with Sir Tony’s assessment that local authorities’ audited accounts were hard reading, and with his proposal for a summary statement in plain English. The Department had asked CIPFA to look at simplifying local authority accounts.40 This included examining the issues behind the growth in the length of …
Government response. The government agrees with the Committee’s recommendation. Target implementation date: September 2021 6.2 The government agrees and is clear that local accountability must be at the heart of local government financial reporting. To deliver on this work will require a …
HM Treasury
17
Conclusion
Eleventh Report - Local auditor reporti…
In May 2021, the Department announced its updated response to recommendations in Sir Tony Redmond’s review, from September 2020. We challenged the Department on whether the new arrangements would have any real effect on the efficiency of local government auditing. In the response, the Department expressed its view that the …
HM Treasury
18
Conclusion
Eleventh Report - Local auditor reporti…
Given that ARGA is not going to be set up until 2023 at the earliest, we pressed the Department on what would happen in the interim. The Department acknowledged that it would take time to establish ARGA, and that doing so would require legislation.46 It accepted the importance of having …
Government response. The government agrees with the Committee’s recommendation. Target implementation date: by end of 2021 5.2 The government recognises the need for effective system leadership now. The department’s Spring Update set out the responsibilities the Audit, Reporting and Governance Authority (ARGA) …
HM Treasury
19
Conclusion
Eleventh Report - Local auditor reporti…
The Department had asked PSAA to continue as the appointing body for procuring audit services, unlike the recommendation in Sir Tony’s review to create a new body as a system leader, an Office of Local Audit and Regulation, which would have had responsibility for procuring audit services.48 When we asked …
HM Treasury
20
Conclusion
Eleventh Report - Local auditor reporti…
The Department confirmed that ARGA would be accountable to the Secretary of State for Business, Energy and Industrial Strategy.50 The Department explained that it would hold Accounting Officer responsibility for the local government role of ARGA and for all aspects of the local government audit and accountability system, including public …
HM Treasury
21
Conclusion
Eleventh Report - Local auditor reporti…
In September 2020, Sir Tony Redmond reported to the Secretary of State for Housing, Communities and Local Government, that it was clear from his independent review of the effectiveness of local audit and the transparency of local authority financial reporting, that the local audit market was very fragile.53 The London …
HM Treasury
22
Conclusion
Eleventh Report - Local auditor reporti…
All parties agreed that the market was not currently competitive, and that one measure needed for the market to become effective was to have more audit firms in the market.56 Only eight audit firms are accredited to audit local authorities.57 Of these eight, EY and Grant Thornton together carry out …
HM Treasury
23
Conclusion
Eleventh Report - Local auditor reporti…
We pressed the Department on what it was doing to encourage a greater number of audit firms to carry out audits of local authorities. The Department agreed that maintaining capacity in the market for auditing local authorities was a serious matter.61 It reported that it kept a close watch on …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
24
Conclusion
Eleventh Report - Local auditor reporti…
PSAA is the organisation responsible for appointing audit firms to audit those local authorities which have opted into its arrangements, for an initial five-year period to 31 53 Sir Tony Redmond, Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial reporting, September 2020 54 …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
25
Conclusion
Eleventh Report - Local auditor reporti…
PSAA recently commissioned research into the market for auditing local authorities which found challenges and barriers to audit firms looking to come into the market. New firms have to invest in their staff over time to build the specialist knowledge and accreditation needed to carry out audits. A member of …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
26
Conclusion
Eleventh Report - Local auditor reporti…
For the next procurement round for audits of local authorities from 2023, PSAA is looking at measures to reduce the barriers to entry for new audit firms. One measure proposed is for firms to enter the market while carrying out relatively small packages of audit work. PSAA is also open …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
27
Conclusion
Eleventh Report - Local auditor reporti…
We challenged the Department on the sustainability of firms auditing £100 billion a year of spending by local government while relying on only a few hundred auditors with the requisite skills. The Department and PSAA recognised the challenge which audit firms faced in having sufficient people to take on all …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
28
Conclusion
Eleventh Report - Local auditor reporti…
PSAA highlighted that the age profile of key audit partners was a factor likely to increase the challenge which audit firms faced, in having sufficient staff.80 EY confirmed that it was facing a retirement issue for its key audit partners, with most having been in careers in local audit for …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
29
Conclusion
Eleventh Report - Local auditor reporti…
Sir Tony Redmond highlighted that his review found that the lack of career prospects and opportunities produced a real challenge for trainee accountants when considering whether to go into public sector accounting and auditing. He believed that audit firms needed to give more attention to career progression and training schemes …
Government response. 4.2 The government agrees that a ready availability of skilled and appropriately trained auditors is crucial to ensuring both the long-term sustainability of the local audit market and good quality, timely audit. As Sir Tony Redmond has noted in his …
HM Treasury
30
Conclusion
Eleventh Report - Local auditor reporti…
The Department reported that it was working closely with the Financial Reporting Council (FRC), the Chartered Institute of Public Finance and Accountancy (CIPFA) and 75 Local Government Association submission, page 2 76 Institute for Chartered Accountants in England and Wales submission, pages 1, 4 77 Qq 12, 42, 46 evidence …
Government response. 4.3 The department committed in its December 2020 response to working with the Chartered Institute of Public Finance and Accountancy (CIPFA), the Financial Reporting Council (FRC), the Institute of Chartered Accountants in England (ICAEW) and Wales and other stakeholders on …
HM Treasury
31
Conclusion
Eleventh Report - Local auditor reporti…
PSAA noted that the audit firms carried out extensive training programmes for their staff, but that it was important to ensure these programmes covered training on the specific aspects for audits of local authorities.88 Grant Thornton informed us that it was the largest trainer of students through CIPFA, but that …
Government response. 4.3 The department committed in its December 2020 response to working with the Chartered Institute of Public Finance and Accountancy (CIPFA), the Financial Reporting Council (FRC), the Institute of Chartered Accountants in England (ICAEW) and Wales and other stakeholders on …
HM Treasury
32
Conclusion
Eleventh Report - Local auditor reporti…
In 2019, the previous Committee reported on the reduction in fees for auditing local authorities.90 The Department accepted that audit fees had become insufficient to reflect the increased challenges in auditing local authorities.91 Sir Tony Redmond confirmed that audit fees in real terms had dropped significantly in recent years. He …
Government response. 3.4 As set out above, the government has committed to amend regulations to provide the appointing person (PSAA) with greater flexibility, including to set standardised fee variations across groupings of bodies, and to amend the fee-setting deadline to allow the …
HM Treasury
33
Conclusion
Eleventh Report - Local auditor reporti…
EY and Grant Thornton highlighted that the amount of work which firms were required to carry out in auditing local authorities looked nothing like that required in 2017, for example, in the additional work involved in valuing assets supporting pension funds and of investment properties.94 Grant Thornton referred to additional …
HM Treasury
34
Conclusion
Eleventh Report - Local auditor reporti…
We sought clarity from the Department on whether, if fees went up, it would look to reflect the increase in the settlement for local government. The Department responded that is had put in more money this year for affected bodies, rather than going directly to audit firms.97 The Department reported …
Government response. 3.4 As set out above, the government has committed to amend regulations to provide the appointing person (PSAA) with greater flexibility, including to set standardised fee variations across groupings of bodies, and to amend the fee-setting deadline to allow the …
HM Treasury