The Financial Reporting Council (FRC) has released a report on the NHS audit market, providing insights to aid the government’s efforts in reforming the local audit system.
The study, initiated in July 2024, responds to the challenges faced by NHS bodies in maintaining auditor relationships.
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The FRC’s investigation into the audit market for NHS providers and Integrated Care Boards (ICBs) in England indicated that, although the market functions more effectively than that of local authorities, there are concerns that could threaten its future resilience.
Three primary issues have been identified: limited capacity expansion among audit firms, problematic audit tender processes, and a misalignment of priorities between NHS bodies and audit firms.
Audit firms currently serving NHS clients have expressed their capacity to continue but face significant barriers when attempting to scale their services.
They have also highlighted difficulties with the tender processes for audits and a lack of early engagement with NHS bodies.
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Furthermore, there seems to be a divergence in priorities. NHS bodies often focus on meeting audit deadlines and financial targets, which may come at the expense of the quality of accounts and audits. This misalignment could impact the overall effectiveness of the audit process.
The FRC’s report suggested a variety of potential remedies, both short-term and medium to long-term, that could be implemented as part of the government’s broader local audit system reform programme.
These recommendations aim to address the identified issues and bolster the audit market’s resilience.
FRC executive supervision director Sarah Rapson said: “While we have not seen the same challenges as have been experienced with local authority financial reporting and audit, it is vital to address the issues in the audit market for NHS bodies to maintain its resilience.
“These findings and their potential remedies will help support the Government’s wider reform programme for the local audit system, work which the FRC is also contributing to in our regulatory capacity.”
