Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Deferred
Local audit delays caused by authorities, auditors, and regulatory pressures on complex valuations.
Conclusion
The Department described the local audit system to us as having no ‘single version of the truth’ for what is holding up individual audits, in some cases issues being with the authority preparing the accounts and in other cases the problem being with auditors.34 Auditors and local authorities both report the pressures of regulation being a contributing factor to delays. The FRC used its sanction powers for the first time in 2022, issuing a fine of £250,000 for quality failings it identified in one local audit.35 Grant Thornton told us that while the FRC’s focus has improved the quality of both financial reporting and local audit, firms will defer audit reports where work cannot be completed to the FRC’s standards by expected target dates. They describe firms increasingly exercising caution when dealing with complex audit issues, particularly around asset valuations.36
Government Response Summary
The government agrees with the committee's observation and will provide its approach in October 2023. It will also explore how greater transparency around audit delays could influence behaviour and consider a wider system of consequences in the longer term after clearing the backlog.
Government Response
Deferred
HM Government
Deferred
5.1 The government agrees with the Committee’s recommendation. Target implementation date: October 2023 5.2 The department will write to the Committee in October 2023 with its approach. 5.3 The government recognises the potential role incentives and sanctions can play in a 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. 5.4 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.