Local Audit and Statutory Regulations
2 minute read
Overview
The Local Audit and Accountability Act 2014 (LAAA), which received Royal Assent on 30 January 2014, introduced a new framework for regulating auditors of local bodies in England. These bodies include local authorities and health organisations (excluding Foundation Trusts). In most respects the framework aligns with that used for company audits.
Under the LAAA:
- Local bodies appoint their own audit firms.
- These firms must be registered with a Recognised Supervisory Body (RSB) approved by the FRC.
- Audit firms are regulated by their RSB.
Public Sector Audit Appointments Ltd (PSAA) acts as the appointing person under the Appointing Person Regulations which were established under the LAAA. Local bodies can opt into this regime, where PSAA appoints a private sector audit firm to conduct their external audit.
Future Changes to Local Audit Regulation
In April 2025 the UK Government confirmed plans to introduce legislation establishing the Local Audit Office (LAO) and defining its statutory powers and objectives. The Government Response to the Local Audit Reform Consultation sets out its strategy to overhaul the local audit system.
Under the planned legislation the LAO will take on the responsibilities currently held by the Financial Reporting Council (FRC), including audit quality supervision, auditor registration, and enforcement for local public audits. The following paragraphs outline the FRC’s current responsibilities.
Current Delegation of Responsibilities to the FRC
On 16 June 2014, the Government laid an Order before Parliament – the 'Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014'. This Order transferred most responsibilities for overseeing the regulation of auditors of local public bodies to the FRC.
These powers came into effect on 19 August 2014.
FRC’s Key Responsibilities under the Order
The FRC was given three main duties:
- Transparency Reports
Issue regulations requiring auditors of major local bodies to publish annual transparency reports. - Register of Local Public Auditors
Make regulations for maintaining the official register of local public auditors. - Guidance on Competence
Provide guidance to Recognised Supervisory Bodies (RSBs) on the competence and experience needed for individuals who can take responsibility for audits and sign audit opinions.
Current Status
The FRC’s delegated responsibilities under the 2014 Order will remain in place until the LAO is formally established.
Further Information
The following resources provide guidance and legal context for the FRC’s responsibilities under the Order.
| Name | The Local Auditors (Transparency) Instrument 2015 FRC 01/2015 |
|---|---|
| Publication date | 15 May 2015 |
| Type | Information sheet |
| Format | PDF, 82.2 KB |
| Name | The Local Auditors (Registration) Instrument 2015 FRC 02/2015 |
| Publication date | 15 May 2015 |
| Type | Information sheet |
| Format | PDF, 87.7 KB |
| Name | Guidance to Recognised Supervisory Bodies on the approval of Key Audit Partners for local audit |
| Publication date | 30 June 2022 |
| Type | Guidance |
| Format | PDF, 2.0 MB |
Recognised Supervisory Bodies (RSBs) and Recognised Qualifying Bodies (RQBs)
The FRC is responsible for recognising professional bodies as RSBs and RQBs for local audit purposes.
- ICAEW has been recognised as an RSB since 1 November 2015.
- CIPFA has been recognised as an RQB since 1 October 2014.
- ICAS was recognised as an RSB from 1 November 2015 until 31 December 2020, after which it ceased to hold RSB status for local audit in England.
The requirements for recognition under the LAAA generally mirror those under the Companies Act 2006.
The Professional Bodies Supervision Team within the FRC oversees the activities of RSBs and RQBs to ensure they continue to meet recognition requirements.
Further Information
The following resources provide guidance and legal context for the FRC’s recognition of RSBs and RQBs.
| Name | ICAEW Recognition Order effective from 01 November 2015 |
|---|---|
| Publication date | 1 August 2017 |
| Type | Statement |
| Format | PDF, 157.7 KB |
| Name | ICAS Recognition Order effective from 01 November 2015 |
| Publication date | 1 August 2017 |
| Type | Statement |
| Format | PDF, 154.5 KB |
| Name | RSB Revocation Order |
| Publication date | 8 December 2020 |
| Type | Statement |
| Format | PDF, 71.1 KB |
Major Local Audits
There is an additional level of supervision for audits of significant local public bodies. The FRC is currently responsible for monitoring the quality of major local audits, as defined in The Local Audit (Major Local Audit) Regulations. In its response to the consultation to overhaul local audit the Government has committed to transfer responsibility for supervision of all local audits to the LAO.