Local Audit and Statutory Regulations
Published: 25 September 2023
3 minute read
Overview
The Local Audit and Accountability Act 2014 (LAAA) received Royal assent on 30 January 2014 and 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.
FRC Responsibilities
The Government laid an Order 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 (The Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014). 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 FRC has revised its guidance following a public consultation.
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 Bodies Supervision 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.
FRC Statutory Regulations
The Local Audit and Accountability Act 2014 (LAAA) introduces new arrangements for regulating the auditors of local bodies in England. As a part of that statutory framework there is a delegation of powers and responsibilities to the FRC under the Local Audit (Delegation of Functions) and Statutory Audit (Delegation of Functions) Order 2014. The FRC has been delegated three specific responsibilities and has made three legal instruments under those powers.
| 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 |
| Format | PDF, 2.0 MB |
Recognised Qualifying Bodies Recognition Order
| Name | CIPFA Recognition Order effective from 01 October 2014 |
|---|---|
| Publication date | 30 September 2014 |
| Type | Scheme and regulation |
| Format | PDF, 232.0 KB |
Recognised Qualifying Bodies Recognition Order
| 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 | Policy and responsibility |
| Format | PDF, 71.1 KB |