UK Government introduces urgent measures to tackle local audit crisis

The UK government has tabled new legislation in Parliament on September 9, 2024. The Accounts and Audit (Amendment) Regulations 2024, set to come into force on September 30, 2024, introduces a series of measures aimed at clearing the audit backlog and restoring timely financial reporting in England’s local government sector.

The Statutory Instrument, laid alongside a revised Code of Audit Practice from the National Audit Office (NAO), establishes crucial backstop dates for local authorities to publish their audited accounts.

For financial years 2015/16 to 2022/23, the deadline is set for December 13, 2024. The legislation also outlines specific publication dates for subsequent years:

• February 28, 2025, for the 2023/24 financial year
• February 27, 2026, for 2024/25
• January 31, 2027, for 2025/26
• November 30, 2027, for 2026/27
• November 30, 2028, for 2027/28

These deadlines apply to what the regulations term “accountability statements,” which include the statement of accounts with the auditor’s opinion and any certificates, the annual governance statement, and the narrative statement.

The new regulations also adjust the timeline for the exercise of public rights. For financial years beginning in 2024, 2025, 2026, and 2027, the period for public inspection of accounts need not commence until the first working day of July in the following financial year.

“This backstop date is a vital part of restoring financial accountability to the local government sector in England,” said Alan Vallance, ICAEW Chief Executive. He emphasised the importance of local authorities and their auditors working together to clear the backlog of incomplete audits, which he believes will help restore credibility to the sector.

Owen Mapley, CIPFA Chief Executive, echoed this sentiment, calling the legislation “a vital first step towards restoring timely and effective public sector audit.” Mapley urged public sector CFOs and their audit partners to collaborate in clearing the backlog, suggesting that local authorities start by ensuring all available accounts are published as quickly as possible.

The Financial Reporting Council (FRC), as the system leader for local audit, is taking steps to support the implementation of these measures. Sarah Rapson, FRC Executive Director of Supervision, highlighted the crucial role of the local audit system in ensuring transparency and accountability for public money spent on vital local services.

She stated, “This legislation represents a necessary step towards rebuilding the system so it can provide the assurance the public deserves.”

To facilitate this transition, the NAO has developed Local Audit Reset and Recovery Implementation Guidance (LARRIGs) in collaboration with the FRC and audit firms. These guidelines, endorsed by the FRC, will be published shortly to assist auditors in meeting the requirements of the revised Code of Audit Practice.

Furthermore, the FRC has announced a pause on routine inspections of major local audits for financial years up to and including 2022/23, unless there is a clear public interest case to do so. This decision aims to allow auditors to focus on clearing the backlog and returning to timely reporting.

The legislation also makes consequential amendments to the Non-Domestic Rating (Transitional Protection Payments) Regulations 2013 and Non-Domestic Rating (Rates Retention) Regulations 2013, aligning their end-of-year calculation deadlines with the new audit publication dates.

This comprehensive approach to tackling the local audit backlog represents a significant step towards restoring financial accountability in England’s local government sector. As the system adapts to these new requirements, the focus will be on balancing the need for timely reporting with maintaining audit quality, ultimately aiming to rebuild public confidence in local government finance.

The success of these measures will largely depend on the collaborative efforts of local authorities, auditors, and regulatory bodies in the coming years. As Alan Vallance noted, the sector will need to continue working on addressing the underlying issues that led to these delays and implement longer-term reforms to prevent future backlogs.