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Government gives green light to Redmond Review recommendations

22 December 2020: The government has responded positively to Sir Tony Redmond’s review into the effectiveness of external audit and transparency of financial reporting in local authorities, with some of the recommended reforms starting in 2021.

On 17 December 2020, the Ministry for Housing, Communities and Local Government (MHCLG) published its response to Sir Tony Redmond’s independent review of local authority audit and financial reporting.

The response reconfirms the importance of external audit in providing assurance to councils and local taxpayers, particularly at a time when local authorities are exposed to greater risks – whether through stretched funding or increased commercial activity.

The recommendation for a new standardised statement of services and costs to make it easier to understand how money has been spent has also been accepted, although there is no plan to establish a new regulator at this stage.

The three primary concerns raised by the Redmond Review were the fragility of the local audit market, policy objectives of legislation not being fulfilled, and a lack of leadership for the local audit system.

To address these concerns MHCLG is taking these actions:

  • Providing relevant local authorities with £15m in additional funding in 2021/22 to meet the anticipated rise in audit fees driven by new requirements on auditors, including the 2020 Code of Audit Practice, as well as enabling local authorities to develop standardised statements of service information and costs.
  • Committing to work with all the key stakeholders to achieve practical outcomes to the recommendations.
  • Reviewing and reforming regulations to provide the auditor appointing body with greater flexibility to ensure the costs to audit firms of additional work are met.
  • Extending the deadline for publishing audited local authority accounts from 31 July to 30 September for the next two years - covering the audit of the 2020/21 and 2021/22 accounting periods.
  • Working with the FRC and ICAEW to review entry requirements for Key Audit Partners within the scope of the existing regulatory framework, balancing quality and market sustainability.
  • Working with BEIS on the development of an appropriate framework for the corporate auditing profession, ensuring that local audit practitioners have a voice in its development.
  • Engaging local government to better understand council finance team resources and consider how they might be strengthened. 
  • Exploring other options for delivering system leadership, delaying the incorporation of a new regulator (OLAR) whilst the other actions are taken to see if they bring about change without the need for structural reform in regulation.

MHCLG supports recommendations relating to the provision of the annual report and accounts to full council and the appointment of an independent member to the audit committee.

In relation to the local audit of smaller bodies, MHCLG will consider how any new systems leader for local audit should work and review assurance levels and fees if a body’s turnover exceeds £6.5m.

Commenting on the response Alison Ring, Director Public Sector ICAEW said: “We welcome MHCLG’s positive response to the Redmond Review recommendations and ICAEW looks forward to working with stakeholders in shaping the proposed reforms to local authority financial reporting and external audit arrangements. Improving the quality of financial reports and audits is critical at a time when local authority finances are under severe pressure.

“We continue to be concerned about the viability of the local audit market and it is important that this remains at the top of the agenda with no further delay in implementing the Redmond Review recommendations.”