Emergency consultation on temporary changes to the accounting code 2021/22 and 2022/23

Emergency proposals for the update of the 2021/22 Code of Practice on Local Authority Accounting in the United Kingdom: Exceptional consultation on time-limited changes to the Code to help alleviate current delays to the publication of audited financial statements

About the Local Government Association

1. The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales.

2. Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

3. This response has been cleared by the LGA’s Resources Board Lead Members.

General points

4. The current issues with local audit are complex and have a number of causes including a limited number of firms within the market and a shortage of suitably qualified auditors working for those firms. This situation has been made worse by tighter and stricter regulation of auditors following audit scandals in the private sector and more recently by the difficulty of auditing under COVID conditions. The issues are multi-faceted and complex and will take time to address. They require a concerted response from a range of stakeholders including Central Government, the audit firms, the regulators and CIPFA.

5. The statutory timetable is an obligation on councils to publish their accounts, not on auditors to complete the audit. Auditors argue that professional due diligence requires them to take the steps necessary to come to an audit conclusion however long that takes. The pressure they are under from regulators in relation to audit quality supports them in that view. And indeed, from a public interest point of view there is less assurance to be gained from a rushed audit.

6. Arguably one way out of the problem is to increase the capacity of audit firms and scale back some of the less important aspects of their work, such as the valuation of operational assets. The proposals made in this consultation can therefore be seen as a positive temporary step to alleviate the problems. However, the ongoing problems will still need to be addressed in the longer term.

7. Further points are made as comments in answer to the final consultation question.

Individual questions – B1 Valuation of operational property, plant and equipment

Question 1a: Do you agree with the proposal that preparers should have the option to pause professional revaluation? If not, why not? Please provide reasons for your view.

8. We agree with this proposal as we believe that this will save some time for both auditors and preparers. It is important that the option is at the council’s discretion because given the very late consultation many councils are already undertaking valuation exercises and may wish to continue with these.

Question 1b: Additionally, do you agree with the proposal that preparers should have the option to pause professional revaluation and adopt an indexation approach to 2021/22? If not, why not? Please provide reasons for your view.

9. We agree with this proposal. We believe this will be helpful in saving time and providing a standard approach. To avoid long debates with auditors a specific index should be specified and applied consistently.

Question 1c: If you support this proposal but the impacts for 2021/22 are minimal, so that audit timeliness issues remain, would you support either of these changes being explored for the 2022/23 Code?

10. As outlined in the general points made above, long-term solutions are needed that will involve a wide number of changes. We support exploring further options to alleviate the problems, including these.

Question 2: Do you have any comments on the impact of the adoption of this approach on preparers or auditors? If so, please provide more information.

11. Feedback from councils is that the adoption of this approach ought to save time for both preparers and auditors. However, in order to make this work preparers will need to demonstrate that they have applied appropriate tests to ensure that the asset register is complete (this is already common practice). In addition, and most importantly, auditors will need to agree to the approach before the accounts are prepared i.e. before the end of March and accept that, based on the work carried out by the preparers, that their testing should be minimal. Indeed, the point has been made to us that auditors used to, and should still be able to, rely on professional valuations provided without the need to obtain their own valuations which may be chargeable to local tax payers and adds little value to the published accounts.

Question 3: If you support this approach, do you consider that the approach should be available to all local authorities, restricted to England, or determined on a jurisdiction basis reflecting the view of the relevant government?

12. It is clear that the problem of widespread delays to accounts is being suffered by local authorities in England and the approach is clearly aimed at alleviating that. CIPFA should listen to the views of local authorities and their representative associations in Wales, Scotland, and Northern Ireland for a view as to whether the approach should be made available in the other nations as well.

Question 4: If you support this approach in principle, do you consider that it is appropriate for all operational property plant and equipment, including for example, Housing Revenue Account assets?

13. We support this approach as being an appropriate temporary measure.

Question 5: Do you have any other comments on the proposal?

14. See the general points made earlier on the response

Individual questions – B2 Deferred implementation of IFRS 16

Question 6: Do you support the further deferral of IFRS 16 implementation to reduce auditor/preparer workload? If not, why not? Please provide reasons for your view.

15. We support this proposal. This will clearly save some additional time for both auditors and preparers on what is otherwise a new requirement.

Question 7: Do you have any comments on the practical impact of the adoption of this approach? Please provide details to support your view.

16. From discussions with councils, we believe that this further deferral will be relatively easy to implement and will achieve the objective of saving time, or rather not taking additional time, for both preparers and auditors.

Question 8: Do you have any comments on the jurisdictional application of this approach?

17. As in our answer to question 3, CIPFA should listen to the views of local authorities and their representative associations in Wales, Scotland, and Northern Ireland for a view as to whether the approach should be made available in the other nations as well.

Question 9: Do you have any other comments on the proposal?

18. See the comments made in the general points earlier in the response

Additional question

Question 10: Do you have any other comments on the issue of the timeliness of the publication of audited financial statements in local government and the impact on the Code?

19. As outlined in the general points above, the issues currently being encountered stem from a number of trends and a complex series of events and causes. As already outlined, proposals to change the Code will help by freeing up audit time, but they will not be sufficient on their own.

20. Whilst auditors have faced severe challenges, the issues faced are not new to 2020/21 so it remains unclear why performance has been so much poorer this year than it was in 2020. These issues will not easily be resolved, and problems are likely to persist in some form for some years. Consideration should be given to wider and longer-term changes.

21. It is worth noting that in the independent review into the arrangements in place to support the transparency and quality of local authority financial reporting and external audit in England (the Redmond Review) paragraph 2.3.15: stated that (The) “FRC (Financial Reporting Council) is of the view that the perception that it focuses mainly on asset valuations understates the scope of their quality reviews. It also believes that if a focus on asset and pension valuations is inappropriate, this is the responsibility of the partnership between CIPFA (England, Northern Ireland and Wales) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) known as CIPFA/LASAAC to resolve, through modifications to the Accounting Code.”

22. Changing requirements of external auditors each year, whether these be Code related or otherwise, is a key factor delaying timely completion of audits. Detailed, technical requests and issues can arise late during the audit, which is a considerable barrier to the finalisation of the accounts. External audit firms need to discuss requirements early with local authority clients to ensure the audit runs smoothly and quickly. Firms need to be explicit, as early as possible, of their requirements in terms of changes to the Code so that local authorities can prepare and comply.

23. Clearly there is a strongly held view amongst some stakeholders that changes to the Code do have a long-term role to play in addressing the problems currently faced by local audit.


Bevis Ingram, Senior Adviser Finance

Email: bevis.ingram@local.gov.uk