Watchdog hits out at “unacceptable delays” in financial reporting and audit in local government

The Financial Reporting Council (FRC) has this month warned that its ability to inspect higher risk audits in local government has been “severely restricted”, against a backdrop of more than 900 incomplete audits in England at the end of September 2023.

Publishing its annual report on the quality of major local audits, the FRC expressed its disappointment with the “unacceptable delays” in the sector.

The report noted that with more than 900 incomplete local government audits in England at the end of September 2023, the FRC's ability to inspect higher risk audits had been severely restricted.

The FRC revealed that it had inspected just 10 audits this year - six NHS and only four in local government - compared to its usual 20.

With most local government audits incomplete, often for multiple years, the FRC said it had to significantly reduce inspections to allow audit firms to focus resources on clearing the backlog.

To support the measures being developed to clear the backlog, the FRC announced its plans to perform no routine inspections of local government audits for financial years up to 2022/23, unless clear public interest demands it.

The FRC said it would resume inspections once the system has been reset, “which hopefully will follow the implementation of the package of measures currently being developed by Government”.

While the audits available for the FRC to inspect currently were found to be "good" or required “limited improvements”, the FRC warned its assessment of audit quality may reduce when it is able to inspect the audits of higher profile and higher risk local government bodies.

Sarah Rapson, FRC Executive Director of Supervision, said: “"It’s very disappointing that our ability to inspect higher profile and higher risk audits has been so severely restricted by the backlog.

"Timeliness is an important part of audit quality and as incoming shadow system leader, a key priority for the FRC has been supporting the Department for Levelling Up, Housing and Communities to develop their package of measures to clear the backlog and restore timely completion of audits.”