Consultation on the 2025/26 Audit Fee Scale

Introduction

Consultation on the 2025/26 audit fee scale

Progress is being made on the reform of local audit. The English Devolution and Community Empowerment Bill includes clauses which will set up the new Local Audit Office (LAO), and regulatory changes have been made to redefine the thresholds for smaller bodies and major local audits. CIPFA are making some changes to the accounting code for 2026/27 that will reduce the amount of accounting and audit work required and plan to make more radical changes for 2027/28 following the work of the Better Reporting Group. Once it becomes operational, the LAO will discharge the current role of Public Sector Audit Appointments (PSAA) including the setting of scale fees.

We are working with the Government and other stakeholders on the reforms. It is important that the reformed system restores confidence in the local audit arrangements, permanently restores timely audits, and that financial reporting is improved.  Along with PSAA, the LGA is part of MHCLG’s Local Audit Transition Board that brings together key local audit stakeholders to support the transition to the reformed system.

General comments (to include as answer to question 6)

The overall approach to setting the scale fee has now been established for some years, following consultation over scale fees for earlier years. The approach is to add on any known changes to the scale fee for the previous year and then uprate the total for contractual inflation. It is important that as many known changes as possible are included in the new scale fee. Any changes that have to be made but are not included in the scale fee will mean fee variations. Fee variations are usually the cost of additional work, although one of the aims of the reform of local audit is to decrease the volume of audit work. While being necessary, and despite having been improved over the past few years, the fee variations process is still difficult and there are frequent disputes between auditors and bodies being audited over what is appropriate. It is important that the process is transparent and that, for example, councils are not charged for additional costs caused by delays by others, including external auditors. PSAA has a major role to play in deciding an appropriate outcome. Changes to the process have been made over recent years to try to minimise fee variations by enabling more changes to be included in the scale fee – most notably the statutory date for setting the scale fee is now six months later than it was. 

It is therefore disappointing that the proposed scale fee for 2025/26 includes costs for only a single change, despite other changes being identified. This change does not affect all bodies and is for the fee paid by Pension Fund Bodies for auditors to provide IAS 19 (Employee Benefits) assurance letters to the auditors of admitted bodies. However, having reviewed the analysis done by PSAA on other changes, it is accepted that the problems with local audit, especially the large number of 2023/24 audits that had to be disclaimed through not being completed, means that sufficient robust evidence of actual standard audit costs incurred on other changes identified simply does not exist. This means that it is not possible to make a realistic calculation of a figure to be included in the scale fee for 2025/26 for these. As a result the scale fee as proposed by PSAA for 2025/26 is the only realistic option and is therefore supported.

Contact: Bevis Ingram
Senior Adviser (Local Government Finance)
Email: [email protected]