Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Deferred
Address the lack of incentives and sanctions for timely local auditor reporting by October 2023.
Conclusion
There are no consequences for local government bodies or local auditors failing to deliver audited accounts on time. Audit contracts cannot specify the delivery of opinions by a certain date. The FRC and the Department say that they want to develop a deeper understanding of the issues affecting timeliness before considering possible sanctions as there is no shared view on where responsibility for delays lies. But the problems with the timeliness of local auditor reporting are not new. The FRC’s new responsibilities for leading local audit present an opportunity to develop a better response to issues across the local audit system. Yet the FRC will need to: ensure that the local audit system works compatibly with the timing and content required for other central government accounts and the WGA; manage the tension between its own local audit and quality monitoring roles; and clarify accountabilities, recognising that at present the only consequences in the local audit system are borne by the audit firms and relate to poor audit quality rather than late delivery. Recommendation 5: The Department should write to us by October 2023 setting out how it will address the lack of incentives or sanctions around timeliness of auditor reporting, based on its more detailed review of the causes of delays and where lessons can be learned.
Government Response Summary
The government agrees but states that work on incentives and sanctions requires careful consideration and is a longer-term issue. It is prioritising clearing the audit backlog and commits only to exploring transparency and considering wider consequences once the backlog is resolved.
Government Response
Deferred
HM Government
Deferred
The government agrees with the Committee’s recommendation. well-balanced system. Incentives and sanctions, however, can also result in unforeseen behavioural impacts. Given the range of issues the government is trying to address across the local audit market, any work in this area would require very careful consideration. As stated by Minister Rowley on 17 July 2023 in his evidence given to the Levelling Up, Housing and Communities Committee inquiry into local financial reporting, the government is currently prioritising clearing the backlog of delayed local audits. The government, however, has committed to explore how greater transparency around audit delays could influence behaviour and believes the wider system of consequences is a vital area to consider for the longer term once the urgent issue concerning the backlog has been resolved.