In response to the crisis in financial reporting and audit in local authorities in England, ICAEW argues that urgent action is needed to bring confidence to the finances of local public bodies.
ICAEW’s vision for local audit sets out its support for understandable financial reports, timely high-quality local audits, strong financial management and good governance, value for money and protecting the public interest, and the critical role accountants and auditors play in enhancing transparency and accountability in the public sector.
The proportion of local authorities in England publishing their audited financial statements on time has fallen from more than 95% in 2017 to less than 12% in 2022, with knock-on effects for the audits of other local public bodies such as in the NHS. High-profile governance failures have led to significant financial losses. Unnecessarily impenetrable financial statements are not well understood and are not being used effectively to hold local public bodies to account. There is insufficient capacity in the local audit market, while auditors, finance teams and regulators are not aligned in their view of audit risks. Under-resourced finance teams struggle to produce good quality working papers. Local authority finance teams and audit firms struggle to retain staff in the profession.
ICAEW is publishing its vision for local audit to accompany the recent publication of a Memorandum of Understanding (MoU) between the Department of Levelling Up, Housing and Communities (DLUHC) and the Financial Reporting Council (FRC). The Institute welcomes the MoU, which covers the role of the ‘shadow’ system leader for local audit pending the establishment of the Audit, Reporting and Governance Authority (ARGA).
ICAEW also believes more needs to be done urgently if the local financial reporting and audit crisis is to be resolved.
Designed to prompt discussion about the need for urgent action, the vision identifies a series of challenges we believe need to be overcome, and actions we support to address those challenges. The vision in draft form has provided ICAEW with a focus for engagement with local authorities, auditors, government, and regulators, provoking debate and encouraging everyone involved to take action.
Alison Ring OBE FCA, Director of Taxation and Public Sector at ICAEW, commented: “Urgent action is needed to address the crisis in local financial reporting and audit in England. Local authority finances are under extreme pressure and the need for high quality financial statements, with the assurance that timely audit provides, is more important than ever.
“We want to see a robust financial reporting and audit system, underpinned by strong financial management, good governance and value for money, to protect the public interest. The vision highlights the critical role accountants and auditors play in enhancing transparency and accountability in the public sector.”