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LGA response: Consultation on the 2024/25 audit fee scale

This response has been cleared by the lead members of the LGA’s Economy and Resources Board.


About the LGA

The LGA is the National Voice of Local Government. We’re on the side of councils: promoting their work, supporting them to improve and helping them make a difference to people, places, and the planet. As the national membership body for local authorities, we provide the bridge between central and local government and we help councils deliver the best services to their local communities.

This response has been cleared by the lead members of the LGA’s Economy and Resources Board.

Introduction

  • It is widely recognised that local audit is in crisis. We have been pressing for a pragmatic solution to the backlog in local audit. We are pleased that the Government has taken action to address the backlog as outlined in the Written Ministerial Statement in July and enacted by the laying of the Statutory Instrument and Audit Code of Practice in September.
  • There is an urgent need to restore confidence in the local audit arrangements, restore timely audits permanently, and improve financial reporting. This needs to be progressed with strong involvement from the local government sector. We agree with the statement in the current consultation document “that work on reforming accounting and auditing frameworks must reduce the volume of local audit work needed to deliver a more proportionate Code of Audit Practice (Code) compliant audit”. We therefore are pleased that the Government has committed to overhauling local audit in the longer term.
  • The proposals to address the backlog will impact on audit fees. We accept that the current consultation on scale fees for 2024/25 cannot address the issues that will arise with variations. This is both for additional fees to be charged and also refunds for audit work not carried out.
  • We are very concerned about the scale of additional fees that are likely to be charged during the “recovery” phase of the proposals, and particularly additional fee costs of “rebuilding assurance” that will be required following disclaimed opinions. This is likely to be significant and we will be pressing for it to be fully funded. Public Sector Audit Appointments (PSAA) will have an important role to play in identifying, calculating and verifying these costs.
  • More generally, although the aim of the scale fee proposals is to include as much as possible in the basic scale fee so as to minimise fee variations, the reality is that there have been, and will continue to be, significant fee variations. This requires careful handling and good sharing of information amongst affected parties to come to agreed figures. PSAA’s role in manging the process is crucial.
  • Paragraphs 32 to 34 of the consultation highlight the statement of responsibilities of auditors and audited bodies. This is relevant to fee variations. The consultation states that additional fee variations may be applied where an audited body fails to meet it responsibilities. It also states that additional audit costs (ie costs to auditors) that arise due to auditors not meeting their expectations in relation to their responsibilities are ineligible for a fee variation. This seems to be sensible approach; it would be helpful to have more detail of how it will work in practice and in particular how expectations between auditor and local authorities will be set. Some of our members report that this is not always clear.
  • Consideration should be given to the timing of the payment of fees to audit firms. If refunds are due for work not done in previous years, it would make sense to resolve this before new payments fall due for current or more recent years.

Specific questions

Question 1. Do you support the proposals in the consultation for the fee scale for 2024/25 audits? (Yes / Yes with some reservation / No.)

Please provide additional comments to expand on your response.

Yes, the proposals outlined in the consultation for setting the scale fee are supported.

Question 2. Do you agree with the proposed elements of the 2024/25 fee scale? (Yes / Yes with some reservation / No.)

Please indicate which proposed elements you agree/disagree with and add any additional comments you wish to make?

  • Yes.
  • It is logical that the scale fee should be set by adding inflation and costs of known additional work due to regulatory changes to the base scale fee from the previous year. It is also agreed that where there is known additional audit work relating to individual local authorities this should also be included in the scale fee. This approach should minimise the level of fees added through the variation process and is therefore supported.
  • We accept that the aim here is to consolidate as much as possible into the scale fee so as to minimise the variation process. One of the reasons the date by which scale fees should be set has been moved to 30 November from the start of the financial year is so that as much as possible can be included in the scale fee to minimise fees variations. That said, we accept that the result of continuing significant delays in finalising audits is that there will be new areas where PSAA have not been able to calculate costs due to lack of information. This will no doubt increase fee variations. The implementation of the backstops will also impact on what work is done and when it is done, and this will also have to be dealt with through the fee variations process. To be successful this will depend on good information being shared by all parties and, as mentioned above, PSAA’s role in managing the fee variation process will be critical.

Question 3. Are there other factors you think should be reflected in the 2024/25 fee scale? (Yes / No)

Please provide additional comments to expand on your response.

  • No.
  • A lack of further information means that it would not be realistic to include other factors. A lot of this is down to the audit backlog and the delays in finalising audits. In an ideal world the audit scale fee would reflect the work undertaken in recent audits to a greater extent than in the proposals, but insufficient audit work has been carried out to enable that to happen.
  • As highlighted in our general comments, it is very likely that the process of eliminating the backlog using backstop dates will mean that there will be significant fee variations for 2024/25. However, we accept that there is insufficient information to reflect these in the current scale fee calculation.

Question 4. Any other comments you would like to make?

See comments made in the introduction above.

Contact

Bevis Ingram, Senior Adviser Finance

Email: [email protected]