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The role of accounts in an effective audit system

Author: ICAEW Insights

Published: 30 Nov 2022

Unacceptable delays in the local audit system must be addressed if local authorities want to ensure accountability to the local electorate, says Rob Whiteman.

Local authority financial statements are vital in delivering transparency and oversight. The statements provide a mine of useful information including an overview of the financial performance of services, the liabilities faced by local authorities both now and in the long term, a local authority’s future commitments to pensioners and detailed information on the stewardship of an authority’s assets. Full resource accounting allows for effective decision-making for the users of the accounts, but it also supports resource planning in both the medium term and future generations.

The audit of these financial statements offers an important source of assurance. Audit of local public bodies is an essential part of delivering transparent and accountable public services and is integral to good financial management. Audit opinions form the assurance platform for future years’ financial spend and ensure the medium-term financial plan reflects the most accurate information. 

This is why the Chartered Institute of Public Finance and Accountancy (CIPFA) is extremely concerned about the delays in the local audit system, with only 9% of 2020/21 financial statements signed off by the statutory publication date of 30 September 2021. This represents a significant failure of the system.

As deadlines are missed, so are opportunities for local authorities to use the findings from the audit to maximum effect. Finance teams, for example, would have already needed to press on with the budget and financial management process for the following year. While audit quality is paramount, so is timeliness. Delays to the audit process mean delays to transparency and accountability.

It is much easier to rectify issues when they are identified early so audit findings become less useful as time moves on. This is why CIPFA supports faster closing for both the accounts and audit process. 

CIPFA will support all reasonable moves to improve the local audit system, including having a strong systems leader to implement the required changes and improve the audit framework. 

What we need is a clear road map that will lead to a place where it is the exception that local authority financial statements are not signed off by the publication date, rather than the norm. However, any changes to the financial reporting regime need to have the creation of high-quality financial statements for council taxpayers as the primary goal.

Like the rest of the public sector, local authority financial statements are based on International Financial Reporting Standards (IFRS). CIPFA LASAAC is careful to ensure that the local authority context and specific circumstances are taken into account when implementing these standards in the code of practice on local authority accounting in the United Kingdom. 

CIPFA LASAAC’s vision is that local authority annual accounts should be widely recognised as an exemplar for clear reporting of the financial performance and position of complex public sector bodies and CIPFA supports this ambition. 

As with most standard setters, CIPFA LASAAC is on a journey of improvement. It will examine the areas where complexity might arise and seek to ensure that the messages of the financial statements are clearly and effectively presented. CIPFA is in the process of setting up its Financial Reporting Hub – a permanent working group of local authority accounts preparers and auditors that will help find the best solutions. 

CIPFA is keen to promote the narrative report as a means of clearly communicating the financial performance of a local authority including the presentation of summary financial information. This should improve understanding of the accounts among council taxpayers and service users and may be an early step to assist with the delivery of the recommendations of the Redmond review.

It sounds easy but getting there is a complex process with many stakeholders to consult and opinions to consider. Having timely, concise and useful local authority accounts in accordance with the highest international standards in financial reporting must be the ultimate aim if we are to ensure accountability to the local electorate. 

Rob Whiteman is CEO of CIPFA. 

Visit ICAEW’s public sector financial and non-financial reporting hub to learn more about the vital role public sector reporting plays in strengthening financial controls, improving evidence-based decision-making and bringing transparency to the public about how taxpayers’ money is spent.

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