As we enter into the second half of 2024, we can see tangible progress has been made to bring the local financial reporting and audit system back onto a timely footing.
The backlog of outstanding local body audit opinions peaked at 918 in September 2023, having been reduced to 570 as of May 2024. This progress is a testament to the dedication and hard work of finance teams and auditors alike.
There is, of course, still much work to be done. As incoming shadow system leader for local audit, the Financial Reporting Council (FRC) is responsible for co-ordinating system partners in collectively addressing the challenges facing the sector.
Readers of The MJ will be aware that proposals were consulted on earlier this year to clear the backlog. Following the General Election, it will be for the Government to decide on whether to proceed with these measures as part of its wider approach to the local government sector.
While we wait for the new minister to set out their strategy to resolving the timeliness issues facing the local audit system, it is important that preparers and auditors continue their collaborative efforts to produce and audit as many financial statements as possible.
The FRC supports a local audit system that enables informed decision-making by local body officers, ensures accountability to taxpayers and maintains transparency for central government. And, if we see increased devolution to regional and combined authorities, our frameworks must evolve to support this changing landscape.
The existing framework for producing audited local body accounts remains unchanged and any slowdown in this work could jeopardise the progress we have made.
This commitment to timeliness is essential for maintaining public trust and ensuring local bodies have accurate, up-to-date financial information for decision-making. However, it is crucial to recognise that getting rid of the backlog is just the first step in a longer journey.
Our goal is not merely to clear a backlog, but to create a robust, efficient and effective local audit system that can withstand future challenges. This means not only addressing immediate issues but also looking at the underlying structures and processes contributing to the smooth functioning of local audit.
With a new Parliament about to begin its first session, there is now the opportunity to implement longer-term reforms. The FRC is already collaborating with the Department for Levelling Up, Housing and Communities and other system partners to explore potential improvements.
The approach we are taking recognises that governance, reporting and audit frameworks are interconnected and must be considered as a whole in order to address the root causes of issues in the local audit system, rather than just treating symptoms.
The FRC supports a local audit system that enables informed decision-making by local body officers, ensures accountability to taxpayers and maintains transparency for central government. And, if we see increased devolution to regional and combined authorities, our frameworks must evolve to support this changing landscape.
To achieve these goals, we are focusing on two key areas in 2024-25. First, we will continue to drive and co-ordinate efforts to restore timely, high-quality financial reporting and audit in line with the approach determined by the new Government. Second, we will address the capacity and capability of the local audit market.
This last point is crucial. The FRC is launching an NHS Audit Market Study at the end of this month to examine market choice, access, resilience and risks.
We are also assessing the Chartered Institute of Public Finance and Accountancy's Local Audit Qualification to potentially increase system capacity. Alongside this we are developing a Local Audit Workforce Strategy to boost the capabilities of individual auditors and firms.
These initiatives are vital because a thriving local audit market needs a robust, skilled workforce and a competitive, resilient market structure.
As we move forward, improving the visibility of how the sector is performing to stakeholders and the wider public will be key.
Early next year, the FRC will publish its first annual report on the state of the local audit system, providing a clear picture of progress and challenges.
The journey ahead will not be easy, but necessary. By addressing these fundamental issues now, together we can create a local audit system that will help prevent a backlog like the current one from forming again in the future – a system that provides the accountability and transparency local taxpayers deserve.
The progress we made in clearing the backlog up to this point shows what we can achieve when we work together. Now, let's channel that same energy and commitment into building a local audit system fit for the future.
Neil Harris is director of local audit at the Financial Reporting Council
