Recommendations & Conclusions
21 items
2
Recommendation
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 carry out around 70% of local authority audits. The current contracts for auditing local authorities cover the period up to the 2022–23 financial year but PSAA says it can unilaterally extend these contracts for two years, if needed. Existing audit firms have little financial incentive to stay in the market and there are serious and pervasive challenges to increasing audit capacity further. Audit firms that have left the market no longer have the necessary specialist teams in place. New audit firms face considerable barriers in the time and costs involved in gaining entry to the market, such as developing a sufficient sized team of staff with the specialist skills, led by key audit partners, as part of gaining accreditation. The Department and PSAA are considering how to overcome these barriers, for example, through small packages of audit work, and through consortia where an accredited firm works with an unaccredited firm to enable future entry to the market. In the meantime, any one firm deciding to exit from the market would create a fundamental capacity gap and harm accountability. Recommendation: The Department should write to us by September 2021 explaining what contingencies it has in place should any more audit firms leave the market at the end of their contracts in 2023.
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Government response AI summary
The government agrees with the recommendation and commits to writing to the Committee by September 2021, explaining the contingencies in place to support the procurement of the next round of audit contracts.
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HM Treasury
3
Recommendation
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 firms incur to carry out the work. Audit firms point to the increased work required to audit pension and property valuations, and to meet increased regulatory expectations for Local auditor reporting on local government in England 7 local audit. Local authorities say the focus on these areas means less attention is paid to more meaningful areas for their themselves and their residents, such as their financial resilience, outturn against their budget, and performance outcomes. The Department is consulting on changes to the regulations that set the fees, to enable fees to be set closer to when the audit work is carried out, and so that fees can reflect any increase in audit work required. In the meantime, the Department is consulting on how to allocate an additional £15 million to help audit firms respond to the pressures in the current year. Recommendation: The Department should ensure that PSAA’s next procurement exercise, due to begin in 2021, supports a new fee regime for local government audit, which is appropriately funded, and which brings fees into line with the costs of the work.
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Government response AI summary
The government accepted the recommendation, agreeing to amend regulations to give PSAA greater flexibility in fee setting and committed to working with PSAA on the next procurement strategy to ensure a new, appropriately funded fee regime.
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HM Treasury
4
Recommendation
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 have at least three years’ oversight experience of auditing local authorities. Worryingly, most key audit partners are over 50 years old and audit firms are likely to find it difficult to replace experienced staff when they retire. The audit firms consider there is a missing generation of auditors with specialist experience of auditing local authorities. A lack of career prospects is a further challenge which audit firms face in recruiting trainees and ensuring they have a sufficient future supply of experienced staff to carry out audits of local authorities. This is not solely a problem for the audit firms and the Department is working with the accountancy institutes and the FRC on encouraging people into the sector, making the key audit partner accreditation process smoother, and improving skills development, but this will all take time. Recommendation: The Department should work with the FRC and the accountancy institutions to implement accelerated training and accreditation to increase the supply of qualified auditors quickly, and to build attractive career paths in local audit.
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Government response AI summary
The government accepted the recommendation, outlining ongoing work with stakeholders, including a public consultation on amending Key Audit Partner guidance and developing new training to increase the supply of qualified auditors.
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HM Treasury
5
Recommendation
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 the FRC. However, ARGA will not be set up until 2023, at the earliest, and doing so will require legislation. Contrary to the Redmond review recommendations, ARGA will not be responsible for procurement, which will remain with PSAA, due to the Department’s concerns about potential conflicts of interest. The Department will have Accounting Officer responsibilities for just the local audit element of ARGA, while BEIS will be the sponsor department overall. There is a crisis in local government audit and a need for urgent action to tackle the increasing delays, audit quality and market fragility. The Department recognises the importance of stronger system leadership during the transition to ARGA, but we are not reassured that its proposed liaison committee, bringing together all the responsible bodies, will be 8 Local auditor reporting on local government in England enough to meet the pressing need for system leadership now. It remains to be seen whether ARGA will then be able to meet fully the ongoing priorities for effective system leadership. Recommendation: The Department should write to us by September 2021 and outline: • how it will address the need for strong system leadership now, while ARGA is being set up and established; and • how it will work with BEIS to set up ARGA, the accountability and governance arrangements, and how its performance will be monitored and evaluated.
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Government response AI summary
The government accepted the recommendation, outlining MHCLG's interim leadership role through a Liaison Committee and detailing plans for ARGA's setup including a discrete Remit letter and a distinct local audit section in ARGA's annual report.
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HM Treasury
6
Recommendation
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 more specialist resources the auditor needs to gain accurate estimates of their values. We are concerned that some of the additional audit work now being carried out is disproportionate to the risk to the overall financial stability of the local authority. The accountability of local authorities to stakeholders, such as residents and service users, through audited accounts is a priority. Yet, the accounts of local authorities are impenetrable to many stakeholders. There could be much greater transparency in the financial reporting of local authorities, such as through the inclusion of a simple standard statement, focused on the key issues of most use and relevance to stakeholders, presented in a readily understandable way. The Department is working with others to look at simplifying aspects of the accounts of local authorities. It intends that the new system leader will also look into reducing accounting and audit requirements for areas of less risk to local authorities. Recommendation: The Department should write to us by September 2021 with its detailed plans for agreeing with stakeholders ways to focus local authority accounts and audits on areas of greatest risk and concern to citizens. Local auditor reporting on local government in England 9 1 Accountability, transparency and quality in local authority audits
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Government response AI summary
The government accepted the recommendation, detailing plans to develop a standardised statement, reduce accounting/audit requirements for less risky areas, and work with CIPFA to improve the presentation of local authority accounts.
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HM Treasury
8
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 no longer sustainable due to the complexity of local authority financial statements and the amount and nature of work that auditors were required to do. Grant Thornton considered that the earliest date each year to which auditors could complete audits of local authorities, to the right quality standards, was 30 September.17 The London Borough of Hackney also told us that earlier audit deadlines were not achievable, particularly for larger, complex, authorities.18
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Government response AI summary
The government has already extended the audit publication deadline to 30 September for two years and provided additional funding to local bodies for audit costs. It is also consulting on broader system strengthening and will review the audit deadline after the 2021-22 audits, providing an …
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HM Treasury
10
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 Institute of Chartered Accountants in England & Wales (ICAEW) monitors the quality of other local audits.22 In October 2020, the FRC raised concerns over the quality of local audit. It found that just 40% of audits required no more than limited improvement, down from 64% in 2018–19.23
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Government response AI summary
The government agrees with its interpretation of the underlying recommendation to increase qualified auditors, detailing ongoing work with stakeholders, a public consultation on new training routes, and a commitment to update by the end of 2021.
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HM Treasury
12
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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) …
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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) examine whether the accounts could be simplified, but he did not feel that this could be fully achieved within the framework of statutory accounts. Sir Tony considered that a simple standardised statement would help the public to understand a local authority’s financial position and how it had performed.29 He proposed a further way to bring greater transparency to the public would be for a local authority’s auditor to present a report to its council members each Autumn. He explained that the report to the council meeting would be in the public domain, and provide an opportunity to cover the issues of interest to the public.30 Sir Tony acknowledged that the desire for greater transparency had to be balanced against any sensitivity of the information, in deciding what could be disclosed.31
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Government response AI summary
The government agrees with the recommendation to increase transparency in local authority financial reporting. It is developing a plan to deliver Sir Tony Redmond’s recommendation for standardised statements and will work with CIPFA to improve account presentation, with an update to the Committee by September …
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HM Treasury
13
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 be performing. The University agreed with Sir Tony’s proposals for bringing performance and financial information together and the need to make the data accessible to users of the accounts.32 The ICAEW also pointed out that financial statements were critical to decision making and a key tool in ensuring local authorities were accountable to councillors and residents, but they were not understandable or sufficiently transparent.33
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Government response AI summary
The government agrees with the committee's recommendation to provide detailed plans by September 2021 on how to focus local authority accounts and audits, and is developing a plan to deliver on transparency and reduce accounting requirements.
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HM Treasury
15
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 have an impact on their financial resilience and overall financial stability.37 Sir Tony confirmed that he agreed with local authorities. He considered that some areas of audits to which the auditors gave much attention were not proportionate to the risk to the overall financial stability and resilience of local authorities.38 The Local Government Association also pointed to the additional work that audit firms are required to do as a result of the requirements of the FRC, and that many believed this work was not a high priority in the governance of local authorities.39
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Government response AI summary
The government agreed with the committee's observation, outlining plans to reduce accounting and audit requirements for areas of less risk and to develop a standardised statement to improve the transparency and focus of local authority financial reporting.
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HM Treasury
16
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 statutory accounts and the scope to simplify the code of accounting practice. The Department also wanted the new system leader to look at whether it could reduce some of the accounting and audit requirements for local authorities, where they related to areas of less risk.41 The Department’s new arrangements for local government audits
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Government response AI summary
The government agrees and is developing a plan for authorities to prepare a standardised financial statement. It is also working with CIPFA and stakeholders to simplify accounting requirements and will write to the Committee by September 2021 with a work plan.
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HM Treasury
17
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 Audit, Reporting and Governance Authority (ARGA), the new regulator being established to replace the FRC, would be best placed to take on the local audit system leader role.42 The system leader would be a single body aiming to resolve the fragmented structure of public sector audit, which is dispersed around different bodies, and with no one body looking for systemic problems, co-ordinating different parties, or monitoring and acting on emerging risks.43 The Department believed the proposals it had announced would tackle the weaknesses in the market for auditing local authorities and the fragmented nature of the different responsibilities of the bodies involved.44 We questioned whether ARGA would really have the degree of independence needed to look at the specifics of local 36 Qq 3, 8 evidence session of 17 May 2021 37 Q 46 evidence session of 17 May 2021 38 Q 47 evidence session of 17 May 2021 39 Local Government Association submission, page 1 40 Q 19 evidence session of 20 May 2021 41 Q 47 evidence session of 20 May 2021 42 Ministry of Housing, Communities and Local Government, Local authority financial reporting and external audit: Spring update, 19 May 2021 43 Sir Tony Redmond, Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial reporting, September 2020 44 Q 4 evidence session of 20 May 2021 14 Local auditor reporting on local government in England government audit. The Department indicated that ARGA would establish a unit with local government audit expertise, aimed at ensuring that the specific nature and circumstances of local government were not ignored.45
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Government response AI summary
The government agrees with its interpretation of the underlying recommendation to address system leadership, outlining plans for ARGA as the system leader, and committing to provide updates in September and later in 2021.
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HM Treasury
18
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 stronger system leadership during the transition to establishing ARGA. The Department reported that, in the interim, it would chair a liaison committee to bring responsible bodies together. It recognised the need to take actions that would have the greatest impact quickly, and to tackle immediate issues, such as consultation on changes to regulations that set audit fees.47
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Government response AI summary
The government agrees with the need for effective interim system leadership and has already established the Local Audit Liaison Committee, chaired by MHCLG, to address systemic issues during the transition period before ARGA is fully established.
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HM Treasury
19
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 why the Department had taken a different approach, it explained that, in its view, including procurement within the system leader would have created a potential conflict of interest and it envisaged there would be a benefit from independence between the procurement process in PSAA, and the oversight of quality in ARGA.49
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Government response AI summary
The government agrees with the Committee's position that PSAA should remain the appointing body, and is working with PSAA to design procurement strategy, consider market sustainability contingencies, and amend regulations for fee flexibility. The government will write to the Committee by September 2021 with details …
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HM Treasury
20
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 interest reports which enable auditors to put into the public domain their concerns and recommendations for action on matters that come to their attention in their work.51 The Department added that it would need to work within the oversight arrangements for ARGA, to ensure that the interests of local government were properly reflected and represented.52 45 Qq 22, 23 evidence session of 20 May 2021 46 Q 6 evidence session of 20 May 2021, Ministry of Housing, Communities and Local Government, Local authority financial reporting and external audit: Spring update, 19 May 2021, paragraph 77 47 Qq 6, 40 evidence session of 20 May 2021 48 Q 21 evidence session of 20 May 2021 49 Q 22 evidence session of 20 May 2021 50 Q 70 evidence session of 20 May 2021 51 Qq 25–27 evidence session of 20 May 2021 52 Q 23 evidence session of 20 May 2021 Local auditor reporting on local government in England 15 2 Stabilising the local authority audit market The crisis in the local authority audit market
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Government response AI summary
The government has agreed that MHCLG's Secretary of State will send a specific Remit letter to ARGA and ARGA's annual report will include a distinct local audit section, alongside FRC interim arrangements, to ensure local government interests are reflected.
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HM Treasury
21
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 Borough of Hackney was also concerned that the additional pressure, due to the COVID-19 pandemic, had exposed an already fragile system which was no longer sustainable.54 The Ministry for Housing, Communities & Local Government (the Department), and Public Sector Audit Appointments Ltd (PSAA), accepted that there were serious and pervasive challenges in the local authority audit market and the Department recognised that it needed to take action to tackle the underlying weaknesses in the market.55
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Government response AI summary
The government acknowledges the market fragility and details specific actions to address it, including working with PSAA and stakeholders on contingencies for market sustainability and regulatory amendments for fee flexibility. The government will provide a written update by September 2021.
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HM Treasury
22
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 around 70% of local authority audits.58 Grant Thornton considered that audit firm KPMG’s exit in the last contract round in 2017 left the remaining firms in the market with insufficient capacity to take on the additional audits.59 EY warned that audit firms that had left the market would no longer have the necessary specialist teams in place, if they ever considered re-entering the market.60
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Government response AI summary
The government implicitly accepts the conclusion about the uncompetitive market and is working with PSAA to design procurement strategies to support market sustainability and encourage new firms, including amending regulations to provide flexibility in fee setting. It commits to providing an update on contingencies by …
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HM Treasury
30
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 session of 20 May 2021 78 Q 43 evidence session of 20 May 2021 79 Q 46 evidence session of 20 May 2021 80 Q 12 evidence session of 20 May 2021 81 Qq 29, 30 evidence session of 17 May 2021 82 Local Government Association submission, page 2 83 Q 53 evidence session of 17 May 2021 84 Q 54 evidence session of 17 May 2021 85 Institute for Chartered Accountants in England and Wales submission, page 4 18 Local auditor reporting on local government in England others to ensure there were enough skilled auditors to meet the needs of the market.86 It noted that the FRC was leading a working group with stakeholders to look at factors affecting the supply of audit staff, such as entry criteria and skills development. The Department wanted to make the process for auditors to gain key audit partner status as slick as possible to encourage more people, but it also recognised that increasing the supply of people with the necessary skills would be a long-term issue.87
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Government response AI summary
The government confirms its commitment to working with stakeholders on improving auditor training and reviewing Key Audit Partner entry requirements. It has published a consultation with proposals to amend guidance and develop a new training offer, seeking views on further actions.
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HM Treasury
31
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 it took a long time to train people from joining the firm to becoming public sector specialists. EY added that the ICAEW was looking urgently at the requirement for people to have at least three years’ experience of oversight of delivering audits of local bodies before they could gain accreditation as key audit partners.89 The declining commercial attractiveness of auditing local authorities
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Government response AI summary
The department is already working with stakeholders on improving auditor training and reviewing Key Audit Partner entry requirements, having committed to this in December 2020 and published proposals for consultation in July 2021.
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HM Treasury
32
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 considered that the fall in fees had dissuaded a number of audit firms from bidding in 2017 for the current contracts to audit local authorities.92 The audit firm EY felt that the connection between the underlying cost of the audit and the fee had been lost, and that the fee regime was no longer fit for purpose.93
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Government response AI summary
The government has committed to amending regulations to provide the appointing person (PSAA) with greater flexibility in setting audit fees and to adjust the fee-setting deadline to better reflect additional cost pressures.
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HM Treasury
34
Conclusion
Eleventh Report - Local auditor reporti…
Accepted
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 …
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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 that it was taking action to address the decline in audit fees. It was consulting on changes to the regulations that set the fees for auditing local authorities to enable the fees to be set at a closer time to when the audit was done, and so that variations in fees can respond to changes in the audit work required. In the meantime, the Department was consulting on how to allocate an additional one-off £15 million towards the costs of 2021–22 audits.98 EY told us that the sector welcomed the announcement of the further £15 million, as this would go some way to address the imbalance between the cost of delivering the audits with the specialist skills required, and the fees earned. EY added that it was responding to the Department’s consultation with the view that £15 million be shared in an equitable way with the audit firms facing higher costs of auditing local authorities with increased complexity, rather than those auditing simpler bodies.99 97 Q 9 evidence session of 20 May 2021 98 Qq 6, 10 evidence session of 20 May 2021; C&AG’s report, para 1.16 99 Q 15 evidence session of 17 May 2021 20 Local auditor reporting on local government in England
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Government response AI summary
The government confirms its commitment to amending regulations to provide the appointing person (PSAA) with greater flexibility in setting and varying audit fees, and to adjust the fee-setting deadline to reflect additional cost pressures.
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HM Treasury