UK regulator the Financial Reporting Council (FRC) has said that a third of local government audits need improvement.
The announcement comes after it reviewed 20 major local audits (four health bodies and 16 local government bodies), by six of the largest audit firms. Six of the audits were found to be below par.
It's not all bad news, though. The results of the FRC's latest study are a marked improvement on last year's, where 60% of local audits needed improvement. So progress is being made, but there is still plenty of room for more.
With this in mind, the FRC has identified some key areas of focus for audit firms conducting local audits, off the back of 2021:
- Strengthening the audit testing of expenditure
- Improving the evaluation of assumptions used in investment property valuations and property, plant and equipment valuations
- Providing rationale when supporting a modifying audit opinion
Some good starting points here.
But the issue of the quality of local government audits is actually part of a wider, much bigger, time-management problem.
Earlier on in 2021, the Public Sector Audit Appointments (PSAA) Ltd found that only 9% of local authority audits were completed before the statutory deadline of 30th September – quite shocking.
Of course, COVID-19 restrictions played a large part in this, but there's also the fact that local authorities do not have to formally file accounts, and there are no legal repercussions for missing the audit deadline. Hardly motivation to publish, and complete audits, on time.
These delays have huge knock-on effects, for example, translating to less reliable audited figures on which to calculate future budgets, and denying the public timely assurance that public money is being spent as it should be.
What we're left with is a local audit system that without urgent action "may soon reach breaking point", according to the Public Accounts Committee (PAC).
What's the answer then?
The government is satisfied that an entirely new body isn't needed. Instead, it hopes the incoming Audit, Reporting and Governance Authority (ARGA) will ensure a high standard of local government audits, and provide more market stability.
ICAEW has argued that audit delays indicate wider issues in the local authority audit and reporting system, and is encouraging the government to strengthen capacity in the local audit market and simplify financial reporting.
So that's where we're at.
While the way forward to improving the local government audit market isn't straightforward, what is clear is that both auditors and local authorities need to do much better to ensure consistent, high-quality local government audits. Let's see what 2022's results bring, shall we?
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