Government to issue statutory guidance on audit committees in effort to fix local audit backlog

The Government has announced a raft of new commitments aimed at tackling the local audit backlog, including a promise to issue statutory guidance on audit committees.

Announcing the changes, Local Government Minister Jim McMahon said the current system was "not fit for purpose" and "fragmented".

The new measures build on existing commitments to set up the Local Audit Office as an independent and unified body and come in response to a consultation on local audit reform, which closed in January.

Alongside plans to issue statutory guidance on audit committees, the Government pledged to review the barriers auditors face when exercising statutory powers, including statutory recommendations, public interest reports and advisory notices.

It also plans to issue guidance on the application of statutory powers and review the option of expanding advisory notices' scope.

The reforms will be backed by up to £49m in support to help councils clear their backlogs and cover the additional cost of restoring audit assurance.

The support will be paid in two instalments in 2025/26 and will be based on the size of the bodies' audit fees and the number of modified audit opinions received.

The 16 commitments are:

1. Implement a structured escalation process.
2. Implement a structured and proportionate system for sharing issues.
3. Manage auditor appointments for smaller bodies in the longer term.
4. Review the barriers auditors experience exercising statutory powers (statutory recommendations, PIRs and Advisory Notices), issue guidance on their application and review the option of expanding Advisory Notices' scope.
5. Maintain the register of firms qualified to conduct local audits with the option to delegate.
6. Work with devolved governments and CIPFA to review the content and format of local authority accounts and options for reform ahead of the LAO's establishment, including whether to introduce standardised statements.
7. Amend primary legislation to separate pension fund accounts from administering authority main accounts.
8. Extend the exemption on local authority infrastructure asset valuation.
9. Consider options on making CIPFA's Code of Practice on Local Authority Accounting freely available.
10. Remove KAP eligibility criteria from primary legislation.
11. Establish public local audit provision.
12. Raise the upper audit threshold to ease administrative burdens.
13. Introduce a risk-based approach to enable the LAO to determine audit regimes that are proportionate and appropriate.
14. Issue statutory guidance on audit committees.
15. Work with system partners to produce additional guidance, advice and support for auditors on the process for rebuilding assurance, particularly for auditing opening balances.
16. Consider wider changes to auditing requirements to ensure that they are proportionate to risk and the value provided to users of the accounts, especially for valuations that are subject to major estimation uncertainty.

Minister of State for Local Government and English Devolution, Jim McMahon said: "We inherited a broken local audit system, not fit for purpose, inefficient, fragmented and with a massive backlog.

"Taxpayers' expect and deserve to have confidence in the way their money is being spent locally."

He added: "We are working in lock-step with local bodies to clear the backlog and move towards a simplified streamlined system.

Adam Carey