FRC publishes latest major local audit quality inspection results
29 October 2021
The Financial Reporting Council (FRC) has today published its inspection findings into the quality of major local body audits
in England (which includes large health and local government bodies) for the financial year ended 31 March 2020.
The FRC reviewed 20 major local audits performed by six of the largest audit firms and found 6 (30%) required improvements. This is an improvement on the prior year inspection results where 60% of audits inspected required either improvements or significant improvements.
It is encouraging that the firms have taken action in response to previous findings, however, the timeliness of auditor reporting is disappointing. The FRC had to replace half of the local government audits initially selected for inspection (including higher risk audits) because the audits had not been finalised and signed.*
The key areas requiring action by some of the audit firms include:
- strengthening the audit testing of expenditure;
- improving the evaluation and challenge of assumptions used in concluding over investment property valuations;
- improving the evaluation of assumptions used in property, plant and equipment valuations; and
- providing improved rationale supporting a modified audit opinion.
We are pleased to note that all Value for Money arrangement conclusions inspected by the FRC required no more than limited improvements.
The FRC’s Executive Director of Supervision, Sarah Rapson said:
“High quality audit of local government and other public bodies is an important public interest function, providing an independent view of local body financial statements and the arrangements in place to secure value for money.
While it is encouraging to note the firms’ response to previous year’s findings, it is clear significant progress is still required to ensure high quality audit is being delivered on a consistent basis.
We expect the firms to build on this progress and swiftly address any deficiencies identified.”
A link to the full inspection findings can be found here
Notes to editors
The FRC selects audits for inspection with higher risk attributes. Higher-risk engagements frequently require audit teams to assess and conclude on complex judgmental issues. Higher risk audits include those where the body; is in a high-risk sector or geography, is experiencing financial difficulties or reducing levels of financial reserves, has balances with high estimation uncertainty or has identified governance or internal control weaknesses.
An audit is assessed as good or limited improvements required where the FRC identified either no or only limited findings or concerns to report. Improvements required indicate that more substantive improvements were needed in relation to one or more key findings. Significant improvements required indicates we had significant concerns, typically in relation to the sufficiency or quality of audit evidence or the appropriateness of key audit judgments.