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English local audit delays continue

Author: ICAEW Insights

Published: 08 Dec 2022

Concern mounts for transparency and accountability as more than a third of local authorities have still not published 2020/21 audited accounts.

Almost nine in 10 2021/22 audit opinions for the accounts of local government bodies are still outstanding despite an extended deadline, according to data collected by Public Sector Audit Appointments Limited (PSAA).

The Department for Levelling Up, Housing and Communities (DLUHC) had pushed the deadline back to 30 November 2022 for the publication of 2021/22 audited accounts of local authorities, police and crime commissioners and other local government bodies in England subject to the Local Audit and Accountability Act 2014 after just 9% of audited 2020/21 accounts were published by the original 30 September 2021 deadline

PSAA also reports that more than 220 audit opinions remain outstanding from 2020/21 and earlier, covering more than 160 of 475 local government bodies. Commenting on these figures, Steve Freer, Chair of PSAA, says local authorities “are making decisions, managing multiple financial challenges and laying plans for the future with limited assurance about their underlying financial positions”.

DLUHC announced a package of measures in December 2021 designed to address audit delays, which included the two-month extension to the deadline (it will return to 30 September for 2022/23). However, the number of audit opinions issued by the deadline only increased to 12%. 

Many of the measures were not implemented by the time of the procurement and several are still yet to be concluded, such as the development of a local audit training diploma or HM Treasury’s thematic review of operational property valuation. In addition, ICAEW described the updates to the Financial Reporting Council (FRC) guidance on Key Audit Partner eligibility as a “missed opportunity”.

On top of the issues that contributed to the delays to 2020/21 audits, auditors and finance teams have been grappling with the reporting of infrastructure assets. Historic information deficits and insufficient record keeping have meant that auditors have struggled to obtain sufficient assurance over the net book values of infrastructure assets, despite the seemingly simple valuation basis of historic cost.

DLUHC has recently introduced a Statutory Instrument to override the requirements of the CIPFA LASAAC Code of Practice for Local Authority Accounting to try to temporarily resolve this issue. In its response to a consultation on the Instrument, ICAEW “reluctantly” supported the temporary measure “to prevent further avoidable delays to local authority audits”. However, ICAEW noted that the timeliness issues predate the infrastructure assets issue that was first raised by auditors in March 2022.

Alison Ring, ICAEW’s Director for Public Sector and Taxation, commented: “We are very concerned that the vast majority of local audit opinions are delayed, particularly given the huge backlog of opinions from previous years that remain outstanding. Delayed audit opinions lead to delayed accountability and issues being identified when it is too late, which is a real problem given the financial pressures facing local authorities.

“It’s essential that the backlog is cleared and issues are resolved before the next five-year appointment starts. We need to see urgent and more radical action from government, including the implementation of measures announced in December 2021 and the creation of a system leader equipped with sufficient statutory powers to address system-wide issues including the quality of financial reporting and the attractiveness of the local audit profession.”

2022/23 will be the final year of the current five-year auditor appointment period. PSAA announced in October the results of its procurement of auditors for the next appointment period, warning of likely audit fee increases of 150%. The procurement outcome will see two new firms, Azets and Bishop Fleming, audit English local government for the first time, while BDO and Deloitte will leave the market.

In May 2022, the government announced plans to establish the proposed Audit, Reporting and Governance Authority (ARGA) as a system leader for local audit and, in the interim, for the FRC to act as “shadow system leader”. However, no date has been set for the legislation to create ARGA and ICAEW has raised concerns about whether the system leader will have sufficient powers to resolve the delays.

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