Auditors Professional Oversight Local Audit and Statutory Regulations

Local Audit and Statutory Regulations

The Local Audit and Accountability Act 2014 (LAAA)1 introduced new arrangements for regulating auditors of local bodies in England (principally local authorities and health bodies, other than Foundation Trusts).  In most respects, these mirror the pre- Audit Regulation and Directive (ARD) legal framework for company audits.  
Local bodies appoint audit firms, which must be registered with a Recognised Supervisory Body (RSB) that has been recognised by the Financial Reporting Council (FRC) for local audit.  These audit firms are subject to regulation by the RSB. 
Following the disbanding of the Audit Commission on 31 March 2015 the Public Sector Audit Appointments Ltd (PSAA) was established to ensure a smooth transition to the new local audit regime under the LAAA. The PSAA was formed to take on a number of transitional responsibilities until 31 March 2017 in relation to health bodies and smaller public authorities and until 31 March 2018 for larger public authorities, including the appointment of auditors to local government and parts of the NHS. Once these contracts, under the transitional arrangements have been fulfilled, the responsibilities of the PSAA as the transitional body will cease.
The PSAA has also been appointed by the government, as the appointing person under the Appointing Person regulations. The LAAA also allows for local bodies to opt in to an appointing person regime, the appointing person will appoint the private sector audit firm to conduct the external audit of the local body. The tender process for the appointment of local audit firms commenced in the first quarter of 2017 and the results were announced in June 2017. Health bodies and those local government bodies not opted in, have appointed their own external auditors.

Inspection results of major local audits 

The FRC has published its inspection findings into the quality of major local audits in England for the financial year ended 31 March 2019. This is the first such report published by the FRC.

FRC Responsibilities

The Government laid an Order2 before Parliament on 16 June 2014 that delegated to the FRC most of its responsibilities for oversight of the regulation of auditors of local public bodies by the RSBs.  These powers formally took effect on 19 August 2014.
The FRC has been delegated three specific responsibilities under the Order:

Recognised Supervisory Bodies (RSB) and Recognised Qualifying Bodies (RQB)

The FRC is also responsible for recognising bodies as RSBs and RQBs for local audit purposes. ICAEW has been recognised as a RSB for local audit since 1 November 2015 and CIPFA as a RQB since 1 October 2014. ICAS was recognised as a RSB for local audit from 1 November 2015 until 31 December 2020 after which ICAS ceased to hold RSB status for Local Audit in England. The requirements for recognition under the LAAA generally mirror the requirements under the Companies Act 2006.   

The Professional Oversight Team of the FRC is responsible for the oversight of the activities of the RSBs and the RQB to ensure they continue to meet the requirements for recognition.

Local Audit Quality

There will be an additional level of oversight and monitoring for audits of significant local public bodies. The Audit Quality Review team of the FRC will have responsibility for monitoring the quality of what are to be termed “major local audits”. The monitoring of the audits of local bodies which transitioned into the new regime on 1 April 2017 commenced in 2018 in respect of financial years ending 31 March 2018.
The FRC will also operate an enforcement procedure for major local audits undertaken in the new regime.

1 The Local Audit and Accountability Act 2014 received Royal assent on 30 January 2014.

2 The Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014.