Delays in over 900 local audit reports thwart inspectors

Only a small number of local government and NHS audits has been analysed by the audit regulator this year after ‘unacceptable delays’ in filing completed audit reports

The backlog in audits has been described as ‘very disappointing’ by the Financial Reporting Council (FRC) with over 900 local government audits outstanding in September 2023. This has restricted the work of FRC audit inspectors, which resulted in 10 audits available for review, half the usual number inspected.

The FRC have now said they will not review any local government audits for the 2022-23 financial year. Government is currently developing a new set of measures revolving around these audits, once these are in place the regulator will resume local government audit inspections.

The 10 inspected audits were described as good quality with only minor rectifications, but the FRC expressed serious concerns about the immense backlog.

Inspectors reviewed six NHS audits and just four in local government.

An FRC spokesperson told Accountancy Daily that the low number reflected the limited number that were was available to inspect. All 10 came back in the category of ‘good or limited improvements required’.

The FRC said in the report: ‘The severe restrictions placed on our ability to perform audit quality inspections means that they cannot be relied upon to give a proper indication of audit quality in local government.’

The 10 audits were conducted by six firms, including Grant Thornton UK LLP, Ernst and Young LLP, Mazars LLP, KPMG LLP, BDO LLP and Deloitte LLP.

Four audits needed limited improvements across three firms. Two failed to report on the ‘completeness of expenditure’, one did not appropriately testing the accuracy of underlying information and the fourth was found to have a significant risk over the accuracy of accruals.

An FRC spokesperson said that the backlog of audits dated back to the 2015-16 period and that after the ‘system reset’ – proposed by former local government minister Lee Rowley – the regulator will focus on the higher risk audits of local government such as councils which have declared a section 114 notice.

The ‘system reset’ is designed to clear the level of backlog and prevent it from reoccurring. A consultation is due to take place on this soon with no date set for action to be taken.

Sarah Rapson, FRC executive director of supervision said: ‘It’s very disappointing that our ability to inspect higher profile and higher risk audits has been so severely restricted by the backlog.

‘Timeliness is an important part of audit quality and as incoming shadow system leader, a key priority for the FRC has been supporting the Department for Levelling Up, Housing and Communities to develop their package of measures to clear the backlog and restore timely completion of audits.’

Will Drysdale |Reporter, Accountancy Daily

Will Drysdale is a reporter at Accountancy Daily - email news and leads to william.drys...

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