Audit

‘More needed’ to improve local authority reporting, says ICAEW

Auditors report that infrastructure issues are causing delays to the completion of the 52% of local authority audits 2020/21 accounts that are still outstanding

ICAEW’s response to a CIPFA LASAAC consultation has called for the local audit system leader to take a “whole system approach” to resolve infrastructure reporting issues.

Regular emergency consultations on proposals to temporarily lower financial reporting standards are not the best approach to resolving the crisis in local audit and reporting, the ICAEW has stated in its response to a consultation on proposed temporary amendments to the CIPFA LASAAC Local Authority Accounting Code.

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The consultation follows CIPFA establishing a ‘task and finish group’ to develop a solution to issues with the reporting of infrastructure assets that was raised by auditors in March 2022.

Historic information deficits, compounded by inappropriate existing practices, have reportedly resulted in cumulative overstatements of the gross historical cost and accumulated depreciation of infrastructure assets reported in local authority accounts. 

In addition, the lack of granularity of asset records has “hampered the ability of auditors to obtain sufficient assurance over the net book values of infrastructure assets”, despite the valuation basis of historic cost.

Auditors report that this issue is causing delays to the completion of the 52% of local authority audit accounts from 2020/21 that are still outstanding. 

The deadline for the publication of 2020/21 audited accounts was 30 September 2021.

ICAEW’s response expressed agreement with CIPFA LASAAC that further audit delays are “not in the public interest” if they can be avoided and, therefore, a temporary solution to this infrastructure reporting issue is required. ICAEW has recommended more affirmative wording to the proposed amendments to reduce the risk of differences in interpretation.

The consultation also recommends that the Audit, Reporting and Governance Authority (ARGA), as the new system leader, is “best placed” to develop this whole system solution. However, it warns that ARGA may find this difficult without the same powers over local authority financial statement preparations.

Oliver Simms, manager, public sector audit and assurance at ICAEW, said: “We welcome the leadership that CIPFA LASAAC has shown in seeking to mitigate the delays to local authority audits caused by the infrastructure asset reporting issues. 

“ICAEW does not support the temporary lowering of reporting standards but accepts that it is preferable to the alternatives of extensive delays or widespread qualifications in these circumstances. However, ICAEW would strongly oppose the temporary amendments becoming permanent.” 

He added: “We believe that ARGA is best placed to develop a long-term solution, but that its effectiveness could be hampered by insufficient powers over financial reporting. We urge the government to grant ARGA powers over local authority financial statement preparation to ensure it can take the lead in resolving issues like this and be an effective system leader for local audit.”

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