Recommendations & Conclusions
6 items
1
Conclusion
Eleventh Report - Local auditor reporti…
Not Addressed
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 …
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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 of Local Audit and the Transparency of Local Authority Financial Reporting [the Redmond Review].2 We also received written evidence from a number of individuals and organisations.
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Government response AI summary
The government acknowledges the Committee's report and provides context for its response.
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HM Treasury
7
Conclusion
Eleventh Report - Local auditor reporti…
Not Addressed
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 …
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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 variety of factors had been responsible.13 Staff in the finance function of local authorities and audit staff had been required to perform additional work in response to increasing requirements from regulators. The Financial Reporting Council (FRC) had increased its expectations of audits following high profile corporate failures, such as Carillion. As a result, audit firms had faced a significant increase in work in completing local authority audits, such as on asset and 6 C&AG’s Report, Figure 2 and para 9 7 C&AG’s Report, Figure 3 8 Q 15 evidence session of 20 May 2021 9 C&AG’s report, para 2.9 10 Q 17 evidence session of 20 May 2021 11 London Borough of Hackney submission paras 5 and 6 12 Centre of Public Accountability, Durham University submission, page 1 13 Q 13 evidence session of 20 May 2021 Local auditor reporting on local government in England 11 pension valuations, and audit staff had also been reliant on receiving timely responses from valuers.14 The Department considered that these changes were factors in delaying audit completions.15
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Government response AI summary
The government's response is boilerplate text referring to unrelated rail reports and does not address the conclusion regarding the causes of delays in local authority audits.
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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 …
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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 an opinion on its audit of local authority to an “arbitrary deadline” or without sufficient evidence, at the appropriate quality, to support it.26 Audit firm Grant Thornton felt it had come under pressure to complete its audits 14 C&AG’s Report, para 2.16 15 Q 13 evidence session of 20 May 2021 16 C&AG’s Report, Figure 2 17 Qq 4, 26 evidence session of 17 May 2021 18 London Borough of Hackney submission, para 4 19 Q 41 evidence session of 20 May 2021 20 Local Government Association submission, page 2 21 C&AG’s Report, para 1.2 22 C&AG’s Report, para 2.25 23 C&AG’s Report, para 2.28 24 Q8 evidence session of 20 May 2021 25 Q 14 evidence session of 17 May 2021 26 Qq 2, 7, 31 evidence session of 17 May 2021 12 Local auditor reporting on local government in England to time, but,as with EY, it emphasised it felt it was more important to deliver the audit opinion to the right quality and only issue the audit opinion when it was ready, than to meet deadlines. Grant Thornton believed that this was the right thing to do, as otherwise it would not be giving the right level of assurance to local authorities on their financial statements and on their financial sustainability.27 The Local Government Association also recognised that the extra work demands on auditors in auditing local authorities had led auditors to de-prioritise deadlines.28 The need for greater transparency in local authority accounts
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HM Treasury
14
Conclusion
Eleventh Report - Local auditor reporti…
Not Addressed
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 …
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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 properties. EY added that the valuation of assets supporting pension funds and of investment properties required significant input from its specialist real-estate valuation teams to ensure that valuations were appropriately reported.35 The audit firms pointed out that, at the same 27 Q 9 evidence session of 17 May 2021 28 Local Government Association submission, page 1 29 Q 59 evidence session of 17 May 2021 30 Q 60 evidence session of 17 May 2021 31 Q 62 evidence session of 17 May 2021 32 Centre of Public Accountability, Durham University submission, page 3 33 Institute for Chartered Accountants in England and Wales submission, pages 1, 3, 4 34 Qq 3, 19 evidence session of 17 May 2021 35 Q 38 evidence session of 17 May 2021 Local auditor reporting on local government in England 13 time, the FRC had challenged auditors to improve the work they do in auditing these complex arrangements, and held the audit firms to account for the quality of their audit work.36
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Government response AI summary
The government responded by outlining plans to simplify accounts and reduce requirements for less risky areas, but did not directly address the committee's observation about increasingly complex financial arrangements or the FRC's challenge to auditors on audit quality in these areas.
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HM Treasury
24
Conclusion
Eleventh Report - Local auditor reporti…
Not Addressed
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 …
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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 London Borough of Hackney submission, para 3 55 Qq 4, 12 evidence session of 20 May 2021 56 Qq 28, 51 evidence session of 17 May 2021, Qq 5, 42, 46 evidence session of 20 May 2021 57 Q 11 evidence session of 20 May 2021 58 Q 5 evidence session of 20 May 2021; Q 28 evidence session of 17 May 2021 59 Q 28 evidence session of 17 May 2021; C&AG’s report para 1.16 60 Q 28 evidence session of 17 May 2021 61 Q 61 evidence session of 20 May 2021 62 Q 58 evidence session of 20 May 2021 63 Q 60 evidence session of 20 May 2021 64 Qq 58–59 evidence session of 20 May 2021 16 Local auditor reporting on local government in England March 2023.65 It has a legal obligation to ensure that there is sufficient capacity in the market for auditing local authorities, and that local authorities have access to auditors.66 PSAA recognised that there were many problems in the market for auditing local authorities, and considered that it would take time to sort them out. PSAA wanted to make the market a more attractive one for existing audit firms to stay, and for new firms to enter.67 It also wanted to have long-term viable contracts with the audit firms. We asked if there would be a fundamental problem if one or more of the large audit firms did not bid in the next contract round, and we sought assurance on whether any contingency was in place if any firms dropped out. PSAA explained that if any audit firms were minded to leave the market after the end of the five-year period, it had a safety net in that it could extend the current contracts for two years, forcing the audit firms to keep auditing local authorities beyond 2023.68
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Government response AI summary
The government generally agrees on the crucial importance of skilled auditors and the need to encourage more firms into the market. However, it does not address PSAA's specific efforts to make the market more attractive or its contingency plans for the next procurement round.
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HM Treasury
26
Conclusion
Eleventh Report - Local auditor reporti…
Not Addressed
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 …
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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 to consortia, in which an accredited firm would work with an unaccredited firm, to enable it to learn the ropes and gain experience of the unusual aspects of auditing local authorities.72 PSAA told us that it had consulted audit firms to gain their views on gaining accreditation and entering the market to audit local authorities. This included the option of working in consortia with accredited firms. It was also in contact with firms which had left the market to take soundings from them on returning to the market.73 PSAA explained that its strategy was to convince audit firms that auditing local authorities was an attractive market in which to work; one which would be worth their while; and worth their investment in training their staff. However, PSAA accepted that audit firms had a choice of audit markets and that it faced a challenge in making the offer attractive enough to audit firms.74 The Local Government Association also told us that the attractiveness of auditing local authorities had declined for audit firms, as the 65 C&AG’s report, Figure 1; Sir Tony Redmond, Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial reporting, September 2020, para 3.2.1 66 Q 59 evidence session of 20 May 2021 67 Q 44 evidence session of 20 May 2021 68 Qq 63–66 evidence session of 20 May 2021 69 Q 11 evidence session of 20 May 2021 70 Q 28 evidence session of 17 May 2021 71 Institute for Chartered Accountants in England and Wales, page 5 72 Q 11 evidence session of 20 May 2021 73 Q 45 evidence session of 20 May 2021 74 Q 46 evidence session of 20 May 2021 Local auditor reporting on local government in England 17 demands of the audits had increased
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Government response AI summary
The government generally agrees on the crucial importance of skilled auditors and the need to encourage more firms into the market. However, it does not specifically address PSAA's proposed measures to reduce barriers to entry for new audit firms.
Read full response →
HM Treasury