The Financial Reporting Council (FRC) published its inspection findings into the quality of major local body audits in England, which includes large health and local government bodies.
Overall, 70% of financial statements audits for the 2021/22 inspection cycle required no more than limited improvements, the same as in the previous year. This is a significant improvement on the 46% average over the preceding three years.
Encouragingly, 93% of the auditor’s work on Value for Money (VfM) arrangements required no more than limited improvements.
However, four inspections* across three firms (BDO LLP, Deloitte LLP and Grant Thornton UK LLP), were assessed as requiring significant improvements. This is unacceptable. Findings included:
- Material errors in two sets of audited financial statements.
- Insufficient justification to support the modification of an audit opinion.
- Unadjusted audit differences reported by the auditor being material.
- Changes being made to a VfM audit file provided to FRC inspectors after the FRC notified the firm of its inspection.
The timeliness of auditor reporting and impact on the FRC to undertake timely reviews also remains an ongoing concern. For 31 March 2021 audits of local government bodies, 91% were not completed by the target date of 30 September 2021. Audited bodies, local auditors and those with regulatory responsibilities must continue to work together to restore timely financial reporting and audit.
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The FRC’s Executive Director of Supervision, Sarah Rapson said, “While it is encouraging that some improvements observed last year have been maintained, the number of audits requiring significant improvement is unacceptable and urgent action is required by the firms to address any shortfalls in audit quality.
The persistent timeliness issues with audited accounts remains a significant concern for the FRC as System Leader and concerted action is needed from all parts of the system for local government financial reporting and audit to urgently improve matters.”
Ahead of plans for the FRC to take on a convener role for local audit when the Audit, Reporting and Governance Authority (ARGA) is created, Neil Harris recently started his tenure as the FRC’s first Director of Local Audit.