Regulation of local auditors
Following the closure 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 audit regime which will be established under the Local Audit and Accountability Act 2014 (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.
The LAAA introduces new arrangements for regulating auditors of local bodies in England (principally local authorities and health bodies other than Foundation Trusts). In most respects, these parallel the legal framework for company audits. Local bodies appoint private sector audit firms, which must be registered with a Recognised Supervisory Body (RSB) which has been recognised for local audit, and be subject to regulation by that body. The Government laid an Order before Parliament on 16 June 2014 that delegated to the Financial Reporting Council (FRC) most of its responsibilities for oversight of the regulation of auditors of local public bodies by RSBs. These powers formally took effect on 19 August 2014.
The FRC has been delegated three specific responsibilities under the Order:
- make regulations on the reports, known as transparency reports, which the 2014 Act requires auditors of major local bodies to publish each year;
- make regulations about the keeping of the Register of Local Public Auditors;
- give statutory guidance to the RSBs on the level of competence and experience required for the approval of those individuals within a local public audit firm that are able to take responsibility for an audit and sign an audit opinion on behalf of the firm.The statutory instruments and guidance may be found here.
Recognised Supervisory Bodies and Recognised Qualifying Bodies
In addition to these specific responsibilities, the FRC is responsible for recognising bodies as RSBs and RQBs for local audit purposes. To date ICAEW and ICAS have been recognised as RSB for local audit from 1 November 2015 and CIPFA as a RQB since 1 October 2014. The recognition orders may be found here
The RSBs will have delegated authority to put in place rules and practices covering:
- The eligibility of firms to be appointed as local public auditors (subject to the Financial Reporting Council’s oversight, which might include guidance produced by the Council); and
- The qualifications, experience and other criteria individuals must reach before being permitted to carry out a local public audit and sign off an audit report.Although there is no separate RQB framework for local audit the legislation provides that each key audit partner (i.e. the individual responsible for signing audit reports on behalf of the firm) will need to meet certain criteria in addition to holding an appropriate audit qualification in accordance with the Companies Act 2006 s1219. The guidance issued by the FRC is provided for in the specific responsibilities delegated to the FRC.
Once the new regime commences, the FRC will report annually on the results of its work in a Report to the Secretary of State.
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 (AQR) of the FRC will have responsibility for monitoring the quality of what will be termed “major local audits”. Additionally, the AQR will decide on an annual basis if any other public bodies should be subject to similar additional monitoring. The AQR will then publish the scope of its inspections, following consultation with relevant Government Departments and the professional accountancy bodies. The monitoring of these audits will commence in 2018 in respect of financial years ending 31 March 2018.
 The Local Audit and Accountability Act 2014 received Royal assent on 30 January 2014.
 The Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014