Time for change: An early review for the Code of Audit Practice

By Mike Newbury | 13 February 2024

For the first time a Code of Audit Practice in England could be replaced before the end of its five-year term. That is a big deal. So, why is this on the cards?

The current Code is just short of its fourth birthday.  It marked a significant change in direction from the Code it replaced. Auditors were now asked to produce richer commentary on local public bodies’ arrangements to secure value for money. This welcome development reflected consistent feedback that auditors’ work on value for money could deliver more benefits for local bodies and the communities they serve.

In some places, auditors have used their reporting powers to flag concerns about significant risks to value to money. Such transparent public reporting is at the heart of public audit.

But change is needed now to resolve the broader problems in the local audit market.

Together with the other organisations with a role in the local audit system we have produced new proposals to reset local audit in England for local authorities. These suggested changes are aimed at putting the sector on a path to a sustainable recovery. Specifically, this set of co-ordinated actions aims to deal with the existing backlog of local authority opinions and prevent it from recurring.

We are proposing changes in three main areas: The audit of the accounts; the reporting of value for money arrangements work and; the transfer of audits between auditors as new contracts come on stream for 2023-24 onwards.

On the accounts audit, we are proposing that auditors must provide their opinions in time for local authorities to publish audited accounts by any statutory deadlines set. DLUHC is consulting separately on what those dates could be, with the first deadline of 30 September 2024 proposed for audits of all financial years not yet completed up to 2022-23. The combined effect of the proposed Code change and the proposed regulation gives a route for auditors to complete their audits under international standards on auditing.

The deadline deals with the backlog, and additional deadlines for following years provide continued discipline on getting accounts produced and audited. It will mean that where auditors have been unable to obtain sufficient appropriate audit evidence by the deadline – for whatever reason – qualifications or even disclaimers may be the outcome both for the years up to 2022-23 and for the years following as auditors rebuild assurance.

These changes should help deal with the backlog and prevent its recurrence.

On value for money reporting, we propose to allow auditors to produce multi-year reports for years up to 2022-23. For that period, auditors ought to focus on financial sustainability and governance. From 2023-24, onwards we are proposing they produce an annual report on value for money arrangements by the end of November each year, even where their audit isn’t fully complete. Auditors should use the full range of their public reporting powers to identify and make recommendations where they have identified significant weaknesses in local bodies’ arrangements.

These changes should bring value for money reporting up to date and keep it timely.

The final proposed changes will require auditors to co-operate fully as the new contracts begin from 2023-24 onwards. This will be the first handover period under the NAO’s Code of Audit Practice, and we are keen to make sure this transition is as smooth as possible given the extraordinary circumstances.

To return to where I started. Why change the Code? That’s simple. Because it’s necessary.

Please visit the NAO website for information on how to participate in the consultation.

You can also take part in the FRC’s virtual roundtables discussing the DLUHC and NAO consultations. Click here to find out more.

Mike Newbury is an NAO director

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