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Local audit reform absent from Queen’s Speech

Author: ICAEW Insights

Published: 11 May 2022

Ongoing uncertainty over the government’s intentions for the future of the local audit system could exacerbate the current crisis as the procurement deadline approaches.

ICAEW has raised concerns about the absence of any mention of expected local audit reforms in the Queen’s Speech. Not only are these reforms long overdue, but further delay creates uncertainty for audit firms in the process of preparing tenders for local authority audits in the current Public Sector Audit Appointments (PSAA) Limited procurement round ahead of the 11 July deadline. 

The procurement will determine the auditors for the 99% of local government bodies that have opted into the PSAA Scheme for the five year appointment period starting in April 2023.

The government consulted on reforms to the local audit framework last summer in response to Sir Tony Redmond’s 2019 Independent Review into the Oversight of Local Audit and the Transparency of Local Authority Financial Reporting but the feedback statement is still outstanding.

Several of the government’s existing proposals require legislative changes, including establishing the Audit, Reporting and Governance Authority (ARGA) as the system leader for local audit and transferring responsibility for the Local Audit Code and Guidance from the Comptroller and Auditor General to ARGA.

The implication is that the bill to establish ARGA as a statutory regulator is unlikely to pass in the next parliamentary session, creating uncertainty over whether the government still intends to press ahead with its proposals to reform local audit and, if so, the timeline for doing so.

The government and other stakeholders would like to see this procurement round increase capacity and resilience in the local audit market. More than 70% of local authority audits are currently carried out by only two firms and capacity issues contributed to 91% of 2020/21 local authority audited accounts not being published by the 30 September 2021 statutory deadline.

Oliver Simms, Manager for Public Sector Audit & Assurance at ICAEW, said: “Local audit provides vital accountability and transparency for over £100bn of public spending, but the system is in crisis. It is therefore disappointing that the urgent reforms required are absent from the Queen’s Speech.”

The apparent further delays come after the Public Accounts Committee claimed the Department for Levelling Up, Housing and Communities is not acting with “sufficient urgency” to “address the severe and pressing problems in the local government audit market” in a report on the local government finance system published in January 2022. In its response to the committee published on 28 April, the government committed to publishing the feedback statement “shortly”.

In a recent letter to Minister for Levelling Up Communities, Kemi Badenoch, Alison Ring, ICAEW’s Director for Public Sector and Taxation, warned that the absence of the feedback response to the summer 2021 Local audit framework: technical consultation meant that firms lacked the clarity they need to submit informed bids in the procurement. Ring also warned that delays to corporate audit reform are contributing to the uncertainty as it remains unclear whether the government intends to expand the number of local authorities considered to be Public Interest Entities.

Simms added: “Time is running short for the government to publish the feedback statement to last summer’s 2021 technical consultation on the local audit framework and bring forward the required legislation. The potential importance of the current procurement round in increasing capacity and resilience in the local audit market is too crucial for the government to undermine it by further delay and indecision.”