2: PAC conclusion: There is a pressing risk of market collapse due to an over reliance on a small number of audit firms and significant barriers to entry. 2: PAC recommendation: The Department should write to us by September 2021 explaining what contingencies it has in place should any more audit firms leave the market at the end of their contracts in 2023. 3: PAC conclusion: The commercial attractiveness to audit firms of auditing local authorities has declined. 3: PAC recommendation: The Department should ensure that PSAA’s next procurement exercise, due to begin in 2021, supports a new fee regime for local government audit, which is appropriately funded, and which brings fees into line with the costs of the work. 3.1 The government agrees with both the Committee’s recommendations. Target implementation date: September 2021 3.2 The government agrees a decision by firms to withdraw from local audit could pose a risk to the future sustainability of the market. In the Spring Update, the government set out that expanding the number of firms engaged in the market should be a priority for the next procurement and reiterated that Public Sector Audit Appointments Ltd (PSAA) remain best placed to continue acting as appointing body for local audit. 3.3 The government is working closely with PSAA as it designs its procurement strategy. Given the priority attached to this, it was discussed at the inaugural meeting of the Local Audit 23 Liaison Committee. The PSAA has proposed an increased focus on quality in recent consultations with firms and local bodies, although ultimately prices reflect firms’ bids. Additionally, the department is working with PSAA, local audit firms and other key stakeholders to consider what contingencies may be required to support the sustainability of the local audit market. 3.4 As set out above, the government has committed to amend regulations to provide the appointing person (PSAA) with greater flexibility, including to set standardised fee variations across groupings of bodies, and to amend the fee-setting deadline to allow the appointing person to take account of additional information, to make it easier to reflect additional cost pressures from new requirements. 3.5 The government will write to the Committee in September 2021, explaining the contingencies that are in place to support the procurement of the next round of audit contracts, although being mindful of not wanting to undermine PSAA’s ongoing opt-in and procurement processes.