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Timeliness of local auditor reporting is poor

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While improvements have been maintained in major local audits, the timeliness of local auditor reporting remains a concern for the accountancy watchdog.

28th Oct 2022
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 The Financial Reporting Council’s (FRC) inspection findings into the quality of major local body audits in England (which include local government bodies and health bodies) hit a snag once again in the timeliness of local auditor reporting. The number of audits requiring significant improvements also raised further concerns. 

Concerns raised around timeliness

The watchdog said the lack of timeliness of local auditor reporting is “poor” and impacted its ability to undertake timely reviews. “Timeliness really matters, as it promotes transparency and accountability. As local public bodies face financial pressure and some engage in increasingly commercial activity, it is essential that high-quality financial reporting and the audit process identify and respond to risks on a timely basis,” the FRC set out in the report’s introduction.

The FRC pointed to figures compiled by Public Sector Audit Appointments Limited (PSAA) that showed 91% of 31 March 2021 audits of local government bodies were not completed by the target date of 30 September 2021. 

In addition to the delays in the 2021 local audits, the watchdog also highlighted a growing backlog of earlier audits. For example, 19% of the 31 March 2020 audits were still incomplete by 30 September 2021, and the FRC notes that these incomplete audits include many that would be assessed as being “higher risk”. 

The impact of delays was that the regulator had to replace half of the local government audits it initially selected for inspection because neither the 31 March 2021 nor the 31 March 2020 audits were finalised.

There wasn’t one reason to explain the delays, but the firms blamed everything from resourcing constraints to the complexity of financial statements and delays caused by management. 

The timeliness issue was also a concern last year when the regulator said it couldn’t review half of its original targets for inspection.

“The persistent timeliness issues with audited accounts remains a significant concern for the FRC as System Leader and concerted action is needed from all parts of the system for local government financial reporting and audit to urgently improve matters.”

In a joint statement, the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Institute of Chartered Accountants in England and Wales (ICAEW) shared the FRC’s concerns about the timeliness of local audit and reporting. “We agree that this is a system-wide issue, and it’s crucial that everyone in the sector works together to tackle the causes of these delays and ensure the vital local audit system operates effectively,” said ICAEW’s Alison Ring and CIPFA’s Sarah Sheen.

Significant improvements still needed

The FRC reported that 70% of financial statements audits for the 2021/22 inspection cycle matched last year and didn’t require any more than limited improvements. 

However, 15% of audits needed significant improvements, which the FRC called “unacceptable”. 

Elsewhere, 93% of the auditor’s work on Value for Money (VfM) arrangements required no more than limited improvements.

Inspections across the six large accountancy firms performing local audits found some were performing better than others. Mazars came out with all three financial statements inspected receiving good or limited improvements.  

Responding to the news that Mazars maintained significant improvement in audit quality results, the firm’s head of audit David Herbinet said: “Notwithstanding these strong results and consistent audit quality, we remain committed to continuous improvement. We value the challenge of the FRC review as it provides us with an objective measure of audit quality, which works in tandem with our internal reviews and initiatives, supporting our ongoing focus on delivering quality in all aspects of our work.”

KPMG also had two financial statement audits inspected and two VfM arrangements inspections assessed as good or limited improvements required.

Meanwhile, PwC has fallen out of the scope of the FRC’s inspection as it no longer performs major local audits. 

Robust action required

However, four inspections across BDO LLP, Deloitte LLP and Grant Thornton UK LLP were assessed as requiring improvement:

  • BDO: One VfM arrangements inspection was assessed as requiring significant improvements and one financial statement audit was assessed as requiring significant improvements 
  • Deloitte: One financial statement audit was assessed as requiring significant improvements
  • Grant Thornton: One of the two financial statement audits was assessed as requiring significant improvements. GT has the biggest market share of local audits at 39.8%.

The report found two material errors in the audited financial statements, including cash deposits in the primary statements being overstated by £1.7bn. 

It also reported that one audit required significant improvements because there was insufficient justification for modifying an audit opinion. 

In another key finding, the unadjusted audit differences in one audit reported to the audit committee were material.

“While it is encouraging that some improvements observed last year have been maintained, the number of audits requiring significant improvement is unacceptable and urgent action is required by the firms to address any shortfalls in audit quality,” said the FRC.

Replies (3)

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By Paul Crowley
28th Oct 2022 17:39

'The report found that two material errors in the audited financial statements, including cash deposits in the primary statements being overstated by £1.7bn.'

Did the auditor forget to send a bank letter?
Still, at least it was just a balance sheet item
No mention of the other side of the double entry

Does the public sector consider compliance deadlines are just a joke?

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Replying to Paul Crowley:
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By Hugo Fair
28th Oct 2022 19:06

"Does the public sector consider compliance deadlines are just a joke?"
Yes (particularly the local authorities/councils - see the regular feature, Rotten Boroughs, in P. Eye).

It's not just accounting/audit compliance at which they thumb their noses.
The days of T. Dan Smith are no longer seen as an anomaly ... snout in trough is endemic and 'anyway the rules don't apply to us'!

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By tom123
31st Oct 2022 07:48

I am jealous, - seems the local bodies get another couple of months, compared to Education.

We all have an August year end, with audits being needed by 31 Dec.

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