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Five-year local authority audit procurement results announced

Author: ICAEW Insights

Published: 03 Oct 2022

ICAEW and CIPFA issue joint statement after local authorities warn of 150% increases in audit fees as Deloitte and BDO exit the local audit market.

Public Sector Audit Appointments Ltd (PSAA), the Local Government Association-owned company responsible for procuring local authority audit services in England, announced on 3 October 2022 the results for the next five-year appointment period, commencing with financial years ending 31 March 2024. 

PSAA says it has secured sufficient capacity to assign an auditor to the 99% of English local authority, police, fire and other local public bodies that opted into their procurement. This follows a supplementary procurement round after PSAA only secured 96.5% of the required capacity in the initial procurement.

PSAA has offered contracts for the audits of 470 local public bodies to six registered suppliers. Two audit firms, Azets and Bishop Fleming, will be performing local authority audits for the first time, while KPMG joins the PSAA procurement to gain a 14% market share. Deloitte and BDO, who currently perform around 12% of local authority audits between them, will step down as local auditors after the completion of their audits of financial statements for the year ending 31 March 2023.

Assuming all goes to plan, Grant Thornton will perform 36% of local audits covered by the PSAA procurement, followed by Mazars on 22.5%, EY on 20% and KPMG on 14%. New entrants Bishops Fleming and Azets will carry out 3.75% and 3.25% of the total audits respectively.

The loss of Deloitte and BDO dashes the hope that this procurement round would result in an expansion in suppliers in the local audit market. Audit market capacity issues have been one factor that has contributed to 91% of local authorities missing the 30 September 2021 deadline for publishing their 2020/21 audited accounts. 

Capacity issues, regulatory pressures, and an increase in audit risk as local authorities have invested in commercial property and other ventures, have contributed to firms requesting much higher audit fees in their bids this time around. PSAA has warned local authorities to anticipate a fee increase in the order of 150% between 2022/23 and 2023/24. Acknowledging the funding challenge this will bring to local authorities, PSAA have called for the government to consider additional special financial support for local authorities.

Reflecting their shared view about the importance of local public audit in ensuring transparency and accountability for taxpayers, CIPFA and ICAEW have issued a joint response to PSAA’s announcement.

CIPFA Chief Executive Rob Whiteman and ICAEW Chief Executive Michael Izza said: “We are pleased that PSAA has been able to secure sufficient capacity to ensure all local government bodies that have opted into their scheme have an assigned auditor for the next appointment period.

“However, this procurement round underlines concerns about market stability. Urgent action is needed to ensure the market is robust and attractive. As a minimum, the government should implement the Redmond Review recommendations and bring forward the necessary legislation to formally establish ARGA as the system leader as soon as possible. 

“It is also vital that the system leader is clear on the handover processes for auditors leaving the market and how new suppliers will start new contracts where previous audits have been significantly delayed. The government should support auditors and finance teams to address the backlog of outstanding audits.

“We believe an increase in fees is necessary to support high quality and timely audits, especially in the context of the current challenges in the market and the increased regulatory requirements on auditors. However, a rise of over 150% will be difficult for local authorities, which are already under severe financial pressure. We would hope this increase in fees is reflected in future allocations of resources to local authorities.”

For more information, read the PSAA announcement here.

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