Financial Reporting and Audit in Local Authorities

Housing, Communities and Local Government Committee Closed Inquiry
Opened: 3 Mar 2023 Closed: 18 Mar 2024 Parliament page
This inquiry will examine a range of issues relating to the purpose, understanding and impact of financial reporting and audit in local authorities. It will scrutinise the role of audit in local accountability and democracy and the extent to which accounts provide a clear picture of the financial sustainability and … Read more
15 Recommendations
16 Conclusions
1 Report
4 Oral sessions
5 Letters
4 Events
Activity timeline 15 events
23 Apr
2024
Correspondence
5 Feb
2024
Report published
17 Jan
2024
Correspondence
5 Dec
2023
Correspondence
24 Nov
2023
Report published
18 Jul
2023
Correspondence
17 Jul
2023
Oral evidence
17 Jul
2023
Formal meeting (oral evidence session) · Room 16, Palace of Westminster
26 Jun
2023
Oral evidence
26 Jun
2023
Formal meeting (oral evidence session) · Room 16, Palace of Westminster
5 Jun
2023
Oral evidence
5 Jun
2023
Formal meeting (oral evidence session) · Room 16, Palace of Westminster
Oral evidence sessions 4 sessions
17 Jul 2023
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Oral Evidence
Lee Rowley · Department for Levelling Up, Housing and Communities Siobhan Jones · Department for Levelling Up, Housing and Communities
26 Jun 2023
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Oral Evidence
Alison Scott · Three Rivers District Council Councillor Abi Brown · Local Government Association Councillor Richard Wenham · Central Bedfordshire Council Councillor Tudor Evans · Plymouth City Council Gerald Almeroth · Westminster City Council Michael Hudson · Cambridgeshire County Council
5 Jun 2023
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Oral Evidence
Conrad Hall · Newham Council Gareth Davies · National Audit Office Iain Wright · ICAEW Lynn Pamment · Financial Reporting Advisory Board Mike Newbury · National Audit Office Rob Whiteman · CIPFA
15 May 2023
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Oral Evidence
Dr Henry Midgley · Durham University Ed Hammond · Centre for Governance and Scrutiny Neil Harris · Financial Reporting Council Professor David Heald · University of Glasgow Sarah Rapson · Financial Reporting Council Sir Tony Redmond · Chartered Institute of Public Finance and Accountancy (CIPFA)
Title HC No. Published Items Response
First Report - Financial Reporting and Audit in Local Authorities HC 59 24 Nov 2023 31 Responded
Recommendations & Conclusions
31 results
1 Conclusion Deferred
First Report - Financial Reporting…
Local authority accounts inadequately support democracy due to stakeholder access and understanding issues
The publication of local authority accounts and local authority audit have a vital role to play in supporting local democracy and accountability. However, their capability to fulfil this vital role is limited because stakeholders who might want to use the … Read more
Government Response
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after clearing the audit backlog and alignment with CIPFA's Accounting Code, committing to provide an update by the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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2 Conclusion Deferred
First Report - Financial Reporting…
Lack of shared purpose for local authority accounts hinders democratic accountability
There is currently no shared view of the purposes of local authority accounts and who should be using them. This has made it difficult to decide what the format and contents of the accounts, and their accompanying audit outputs, should … Read more
Government Response
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after clearing the audit backlog and alignment with CIPFA's Accounting Code, committing to provide an update by the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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3 Conclusion Deferred
First Report - Financial Reporting…
First purpose of local authority accounts is to provide a credible public financial record
We believe that the first purpose of local authority accounts is: To provide a credible public financial record that can be relied upon, and which can be used as a point of comparison for other financial information to assess its … Read more
Government Response
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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4 Conclusion Deferred
First Report - Financial Reporting…
Second purpose: enable stakeholders to understand resource use and hold authorities accountable
We believe that the second purpose of local authority accounts is: To enable council taxpayers, businesses, central government, and other sources of funding to understand what money the local authority has received (including council tax, government grants and borrowing) and … Read more
Government Response
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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5 Conclusion Deferred
First Report - Financial Reporting…
Third purpose: enable residents and councillors to scrutinise value for money in services
We believe that the third purpose of local authority accounts is: To enable residents, service users, and councillors to understand the value for money offered by the authority’s spending, so that they can scrutinise the economy, efficiency, effectiveness, and equity … Read more
Government Response
The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code until after clearing the audit backlog and aligning with CIPFA and FRC, providing an update by the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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6 Conclusion Deferred
First Report - Financial Reporting…
Fourth purpose: enable councillors and officers to understand financial activity for informed decisions
We believe that the fourth purpose of local authority accounts is: To enable councillors and officers inside the authority to understand the financial activity, financial position, financial sustainability, and resilience of the authority, so that they can make informed decisions … Read more
Government Response
The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a policy statement, with an update provided ahead of the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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7 Conclusion Deferred
First Report - Financial Reporting…
Local authority accounts must enable informed decisions on financial issues.
We believe that the fifth purpose of local authority accounts is: To enable the public, oversight bodies and central government to understand the financial situation and any actual or potential financial issues affecting the authority, so that they can make … Read more
Government Response
The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a policy statement, with an update provided ahead of the 2025-26 financial year.
Ministry of Housing, Communities and Local Government
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8 Recommendation Deferred
First Report - Financial Reporting…
Ensure local authority account purposes are clearly set out and accessible to stakeholders.
The Government must ensure that the purposes of local authority accounts are clearly set out in government policy and accessible to all relevant stakeholders. This should be done before the next accounts production cycle for the year ended 31 March … Read more
Government Response
The government agrees there is merit in issuing a policy statement to clearly set out the purposes of local authority accounts. However, this will be done as part of a longer process with CIPFA and FRC, with an update provided ahead of the 2025-26 financial year, missing the recommended 31 March 2024 deadline.
Ministry of Housing, Communities and Local Government
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9 Recommendation Accepted in Part
First Report - Financial Reporting…
Coordinate with stakeholders to align local authority accounts with their agreed purposes.
The Government must also coordinate with key stakeholders in the sector, including the Chartered Institute for Public Finance and Accountancy and the local audit system leader, to ensure that the production, content and format of local authority accounts are aligned … Read more
Government Response
The government commits to working with CIPFA and FRC to align the Accounting Code's requirements with the agreed purposes of local authority accounts. They will report back to the Committee on this progress ahead of the 2025-26 financial year consultation process, though not annually as recommended.
Ministry of Housing, Communities and Local Government
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10 Conclusion Acknowledged
First Report - Financial Reporting…
Accounting Code too expensive, restricting access for local authority account users.
The Code of Practice on Local Authority Accounting (the Accounting Code) is a statutorily recommended guidance document for preparing and understanding local authority accounts, but it is too expensive to be accessed by all possible users of the accounts. If … Read more
Government Response
The government acknowledges it may be beneficial to consider how to encourage the use of the Accounting Code and will consider this alongside CIPFA as they reform financial reporting, but does not commit to making the Code freely available.
Ministry of Housing, Communities and Local Government
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11 Recommendation Rejected
First Report - Financial Reporting…
Make the Accounting Code freely available to all local authority account users.
Through coordination with the Chartered Institute of Public Finance and Accountancy, the Department for Levelling Up, Housing and Communities must make the Accounting Code freely available to all possible users of local authority accounts before the next accounts production cycle … Read more
Government Response
The government states the Accounting Code is produced by an independent body (CIPFA) and local bodies receive funding for compliance. It does not commit to making the Code freely available by the recommended deadline of March 2024, but will consider what else can be done to encourage its use.
Ministry of Housing, Communities and Local Government
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12 Conclusion Rejected
First Report - Financial Reporting…
Local audit purposes are to establish credibility and supplement information for accountability.
Within the broader rationale for the local authority accounting and audit systems, the purposes of local audit specifically are: • to establish the credibility of the local authority accounts, so that they can fulfil their purposes in supporting local accountability; … Read more
Government Response
The government explicitly rejects the Committee's stated purposes for local audit, arguing that auditors are not equipped to comment on value for money and that such an expectation would hinder efforts to clear the audit backlog. It points to Oflog's role in informing citizens about local authority performance.
Ministry of Housing, Communities and Local Government
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13 Conclusion Acknowledged
First Report - Financial Reporting…
Local audit system faces unacceptable crisis with extensive backlog of incomplete audits.
The local audit system is currently in an unacceptable crisis which requires significant and urgent attention. The most significant symptom of the crisis is an extensive backlog of incomplete audits and unaudited accounts, some of them many years out of … Read more
Government Response
The government acknowledges the unprecedented audit backlog, stating that a consultation on proposals to clear it will begin in early February. They are working with system partners on a solution and will provide updates on progress.
Ministry of Housing, Communities and Local Government
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14 Conclusion Acknowledged
First Report - Financial Reporting…
Proposed actions to clear audit backlog are necessary but require further implementation.
The Department has proposed a series of actions to clear the audit backlog, which include resetting the system through a limited series of statutory deadlines for the delivery of outstanding audits from previous financial years. These proposals represent a necessary … Read more
Government Response
The government acknowledges the need for action to clear the audit backlog and states that a consultation on their proposals will begin in early February, emphasizing that this has involved detailed and complex work with system partners.
Ministry of Housing, Communities and Local Government
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15 Recommendation Deferred
First Report - Financial Reporting…
Quickly implement proposed actions to clear audit backlog and provide regular progress updates.
The Department must move quickly to clear the audit backlog and implement its proposed actions by the end of the calendar year 2023. Until the actions have been fully implemented, the Department should provide us with updates on its progress … Read more
Government Response
The government is working to clear the backlog with a consultation beginning in February, but does not commit to the 2023 deadline. It will provide updates at key junctures, and while auditors already provide reasons for modified opinions, the government is considering how to ensure consistent messaging regarding fault and will keep the recommendation for specific fault identification under review.
Ministry of Housing, Communities and Local Government
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16 Conclusion Accepted in Part
First Report - Financial Reporting…
Lack of consequences for audit delays contributed to current backlog crisis.
We welcome the commitment of the then-Parliamentary Under-Secretary of State for Local Government and Building Safety to address the causes of delays in the local audit system. While the lack of an annual statutory deadline is not itself a cause … Read more
Government Response
The government will consult on proposals including statutory backstop dates for outstanding and future audits and will consider making backstop dates a permanent feature. They also commit to developing an escalated reporting framework, publishing lists of authorities with delayed audits, and keeping options for introducing incentives and sanctions under review.
Ministry of Housing, Communities and Local Government
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17 Recommendation Accepted in Part
First Report - Financial Reporting…
Introduce annual backstop dates for audited local authority accounts, requiring explanations for delays.
The Department must introduce backstop dates for publishing audited local authority accounts on an annual basis going forwards. The Department must also ensure that, if an authority and its auditors do not collectively produce audited accounts by the backstop date … Read more
Government Response
The government will introduce statutory backstop dates for outstanding historic years and the next five years, and will consider their permanent inclusion. It agrees Section 151 Officers should update their councils on audit issues but does not accept the requirement for direct notification to the Secretary of State or the Committee.
Ministry of Housing, Communities and Local Government
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18 Conclusion Acknowledged
First Report - Financial Reporting…
The Redmond and Kingman Reviews stated that a local audit system leader should be a...
The Redmond and Kingman Reviews stated that a local audit system leader should be a new standalone organisation, but the Government has decided to combine it with the separate audit regulator which is currently the Financial Reporting Council (FRC) but … Read more
Government Response
The government acknowledges the conclusion, confirming their decision to appoint a system leader from within the current system (FRC, transitioning to ARGA) rather than creating a new standalone body, explaining that this policy was subject to public consultation.
Ministry of Housing, Communities and Local Government
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19 Recommendation Accepted in Part
First Report - Financial Reporting…
The establishment of the local audit system leader will require primary legislation.
The establishment of the local audit system leader will require primary legislation. The legislation required to establish ARGA has been significantly delayed and there appears to be little or no forward momentum or urgency in the Government to introduce it. … Read more
Government Response
The government views a new arm's length body for local audit as unnecessary and has instead appointed the FRC as a shadow system leader, which is now staffed and working. Full establishment of ARGA through primary legislation is subject to parliamentary time.
Ministry of Housing, Communities and Local Government
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20 Recommendation Rejected
First Report - Financial Reporting…
The Government must reconsider its plan to combine the local audit system leader with the...
The Government must reconsider its plan to combine the local audit system leader with the new audit regulator, ARGA. Specifically, the Government must, in coordination with the FRC, which currently has shadow system leader responsibility, introduce legislation to create a … Read more
Government Response
The government rejects the recommendation to create a new, separate body for local audit, stating a new arm's length body is not necessary and that ARGA's full establishment is dependent on parliamentary time, while a shadow system leader function is already active within the FRC.
Ministry of Housing, Communities and Local Government
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21 Recommendation Rejected
First Report - Financial Reporting…
The Department must ensure that the local audit system leader is the primary point of...
The Department must ensure that the local audit system leader is the primary point of contact to which local auditors can escalate matters of concern that they find during an audit of a local authority. Additionally, the local audit system … Read more
Government Response
The government states it is not envisaged that the local audit system leader will be the primary point of contact for auditors' escalations or coordinate responses to systemic issues. It notes existing reporting mechanisms to the Secretary of State and DLUHC, and that the FRC as shadow system leader already reports annually on overall trends and patterns.
Ministry of Housing, Communities and Local Government
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22 Conclusion Deferred
First Report - Financial Reporting…
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned...
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned with the intended purposes of local authority accounts. Some statutory overrides can be beneficial by reducing the complexity of the accounts, but many add new … Read more
Government Response
The government recognises that statutory overrides can add complexity to accounts and commits to reviewing existing overrides and relevant legislation to ensure their value outweighs complexity. However, this review will be deferred until after the audit backlog is cleared.
Ministry of Housing, Communities and Local Government
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23 Recommendation Deferred
First Report - Financial Reporting…
The Department for Levelling Up, Housing and Communities must immediately initiate a review into existing...
The Department for Levelling Up, Housing and Communities must immediately initiate a review into existing legislation that places requirements on the contents and format of local authority accounts. The review should refer to the intended purposes and users of the … Read more
Government Response
The government commits to reviewing existing legislation on local authority accounts to reduce complexity and ensure usefulness, but states this will not be an immediate priority due to the audit backlog and will instead form part of long-term reform work.
Ministry of Housing, Communities and Local Government
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24 Recommendation Accepted
First Report - Financial Reporting…
The Department should coordinate with the Chartered Institute of Public Finance and Accountancy and the...
The Department should coordinate with the Chartered Institute of Public Finance and Accountancy and the CIPFA/LASAAC Local Authority Code Board to ensure that the Accounting Code does not interpret existing legislation as placing requirements on local authority accounts disclosures that … Read more
Government Response
The government agrees on the importance of the Accounting Code aligning with legislation and will work with CIPFA to review legislative disclosure requirements and their necessity. Any changes will be implemented through CIPFA LASAAC's annual review process.
Ministry of Housing, Communities and Local Government
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25 Conclusion Deferred
First Report - Financial Reporting…
The Government previously accepted the Redmond Review’s recommendations to introduce a standardised statement of service...
The Government previously accepted the Redmond Review’s recommendations to introduce a standardised statement of service information and costs for local authority accounts. Implementing these recommendations would constitute an important step to improving the clarity and content of local authority accounts. … Read more
Government Response
The government remains committed to introducing a standardised statement but explains that implementation is delayed until the audit backlog is cleared to avoid additional burdens on auditors, while CIPFA develops interim performance reporting.
Ministry of Housing, Communities and Local Government
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26 Recommendation Deferred
First Report - Financial Reporting…
The Department, in consultation with the Chartered Institute of Public Finance and Accountancy, must resume...
The Department, in consultation with the Chartered Institute of Public Finance and Accountancy, must resume the introduction of a standardised statement of service information and costs for local authority accounts as soon as actions to address the audit backlog have … Read more
Government Response
The government remains committed to a standardised statement but defers its introduction until the audit backlog is cleared, citing concerns about adding new requirements at this time. CIPFA will first focus on developing better performance reporting, which could be a precursor to the statement.
Ministry of Housing, Communities and Local Government
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27 Recommendation Deferred
First Report - Financial Reporting…
Introduce legislation to decouple local authority accounts from Pension Fund statements
Local authority accounts are currently required by legislation to include Pension Fund statements, but this has made the accounts longer, more complicated, and less useful to users. The Government should introduce legislation to decouple local authority accounts from these Pension … Read more
Government Response
The government commits to considering the recommendation to decouple local authority accounts from pension fund statements as part of a broader review of legislation it has already committed to undertake.
Ministry of Housing, Communities and Local Government
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28 Conclusion Rejected
First Report - Financial Reporting…
Stakeholders desire explicit value for money opinions from local authority auditors
Local auditors are good at establishing the credibility of the accounts under audit. However, while recent changes to the Audit Code have made improvements to the commentary around value for money, many stakeholders want an opinion from the auditors over … Read more
Government Response
The government rejects the idea of auditors providing a value for money opinion on services, stating this responsibility lies with democratically elected leaders, and such a requirement would place significant, unequipped demands on the current audit system.
Ministry of Housing, Communities and Local Government
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29 Recommendation Rejected
First Report - Financial Reporting…
Ensure local auditors' value for money opinions include actual assessment of value achieved
The Department should work with the organisation that prepares the Audit Code (currently the National Audit Office, eventually the system leader) to ensure that local auditors’ opinions over value for money include an actual assessment of value for money achieved, … Read more
Government Response
The government rejects the recommendation, arguing that ensuring value for money is the responsibility of local leaders, that auditors lack the resources and expertise for such specific assessments, and that it would hinder efforts to clear the audit backlog. They highlight the role of the Office for Local Government (Oflog) in providing performance information.
Ministry of Housing, Communities and Local Government
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30 Recommendation Accepted
First Report - Financial Reporting…
Assess potential benefits of decoupling value for money from financial audit work
The Department should work with the organisation that prepares the Audit Code (currently the National Audit Office, eventually the system leader) to assess the potential benefits (for example, to timescales and resourcing) of decoupling value for money work from financial … Read more
Government Response
The government agrees with the recommendation, committing to consult on decoupling value for money work from financial audit work, continue collaboration with the NAO and FRC, and report the assessment findings to the Committee before the end of this Parliament.
Ministry of Housing, Communities and Local Government
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31 Recommendation Acknowledged
First Report - Financial Reporting…
Introduce new guidance for local authority auditors to proactively flag potential issues earlier
The Department should work with the organisation that prepares the Audit Code (which is currently the National Audit Office but will be the system leader) to introduce new guidance for the auditors of local authorities in order to encourage them … Read more
Government Response
The government agrees with the importance of auditors using their powers and will work with the NAO and FRC to consider the merits of introducing new guidance. However, it does not commit to introducing the guidance or assessing its effect.
Ministry of Housing, Communities and Local Government
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Government Response AI assessment · 31 of 15 classified
Accepted 2
Accepted in Part 4
Acknowledged 5
Deferred 14
Rejected 6
Total 15 recs + 16 conclusions
Correspondence 5 letters
23 Apr 2024 To committee Letter from the Minister for Local Government to the Chair dated 17 April 2024 concerning the Government’s response to the Committee’s report on Financial Reporting and Audit in Local Authorities
Parliament page
17 Jan 2024 To committee Letter from Minister for Local Government to Chair relating to the financial reporting and audit in local authorities, dated 9 January 2024
Parliament page
5 Dec 2023 To committee Letter from the Chair to the Local Government Association dated 27 November 2023 concerning changes to local government financing
Parliament page
18 Jul 2023 To committee Letter from the Parliamentary Under Secretary of State for Local Government and Building Safety to the Chair dated 14 July 2023 concerning local government audits
Parliament page
25 Apr 2023 To committee Letter from the Mayor of Croydon to the Chair dated 30 March 2023 concerning accountability in local government
Parliament page