The largest provider in the local audit market has called for government intervention in councils where there are significant failures in reporting and an unwillingness to take “necessary steps to produce robust financial statements”.
A Grant Thornton report suggested that increased intervention could be one way to address the delays to local government audit that have beset the sector in England in recent years.
“Thought should be given to government intervention where authorities are not giving sufficient priority to their financial reporting responsibilities,” the About time? report stated.
It recommended that statutory officers be required to attest to the effectiveness of their financial reporting processes. “This should form part of government accounting requirements, and non-compliance should result in intervention.”
Intervention with commissioners should be considered where “authorities do not afford sufficient priority to their financial reporting responsibilities”.
Thought should be given to government intervention where authorities are not giving sufficient priority to their financial reporting responsibilities.
Local audit delays
Grant Thornton highlighted ongoing delays, with only 12% of audited accounts for 2021/22 being published by the target date of 30 November 2022. Similar delays are expected for the 2022/23 accounts, which have a target date set by the Department for Levelling Up, Housing and Communities (DLUHC) of 30 September 2023.
According to Grant Thornton, the issues that need to be tackled include: clarity over local audit’s purpose; complexity of financial statements; focus of financial statement work; quality of council finance teams; dealing with the backlog; and intervention.
Until these matters are resolved, it suggested that delays would continue. “The September deadline for audited accounts set by DHLUC is not achievable in the short term and also not achievable until there is further significant change in local audit and local government.”
The firm, which will have 36% of the local government audit market from 2023/24, pointed to some reasons for optimism that the system will recover. These include the plan for the Audit, Reporting and Governance Authority (Arga) – the successor body to the Financial Reporting Council (FRC) – to act as the systems leader for local audit.
The September deadline for audited accounts set by DHLUC is not achievable in the short term and also not achievable until there is further significant change in local audit and local government.
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Memorandum of understanding
The FRC and DLUHC have recently published a memorandum of understanding, which sets out the roles and responsibilities the FRC will take on as system leader during the shadow period ahead of Arga’s establishment.
Under this agreement, the FRC will lead the work to improve competition and bolster capacity, oversee the quality framework for local audit and prepare an annual report on the local audit system.
About time? suggests that the FRC/Arga should consider whether the annual report highlights examples of poor financial reporting and longstanding delays to the publication of both unaudited and audited accounts.
It also calls on the FRC/Arga and government to consider whether temporary flexibility can be introduced into the local audit framework to allow reduced-scope audits to be taken on backlogged accounts.
The report states: “There is no legislative basis for audit firms to issue modified opinions or close audits where financial reporting issues are extensive, or audits are elongated. Audits can continue indefinitely, unlike in the corporate world where companies can be struck off for failure to file accounts.”
Publication of the Grant Thornton report comes as the parliamentary Levelling Up, Housing and Communities Committee has announced an inquiry into financial reporting and audit.
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