The Financial Reporting Council (FRC) has announced that it welcomes the Government’s decisive action to address the significant backlog in local authority audits, as outlined in the Written Ministerial Statement.

As the shadow system leader for local audit, the FRC acknowledges the severity of the current situation and supports the government’s proposed secondary legislation to set backstop dates for clearing the audit backlog. This is an essential measure to reset the system.

Reaching this point has been a collaborative effort across the entire local audit system. The FRC has worked closely with system partners including the Government and the National Audit Office (NAO) in developing these proposals which received feedback from local bodies and audit firms. This joint approach has been crucial in crafting a solution that addresses the complex challenges facing local audit.

The FRC understands the potential short-term implications of these measures, including the likelihood of a large number of disclaimed or modified audit opinions. The unprecedented circumstances facing the local audit sector require uncomfortable decisions to be taken and we will work diligently to ensure these are clearly communicated and understood in context. It is our firm aim that local bodies are not unfairly judged based on disclaimed or modified opinions resulting from the introduction of these backstop dates.

In support of these measures, the FRC will pause routine inspections of major local audits for financial years up to and including 2022/23, unless there is a clear public interest case to do so. This will allow auditors to focus on clearing the backlog and returning to timely reporting.

The FRC is also coordinating with the NAO on guidance for auditors to support them with implementing the proposals set out in the Minister’s statement. Further details regarding publication will be provided in due course.

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Commenting on this, FRC executive director of supervision, Sarah Rapson, said: “The measures announced today represent a necessary and bold first step towards resolving the crisis in local audit. The FRC recognises the exceptional nature of these actions and agrees that they are crucial for restoring transparency and accountability in local government finance. We will continue working with the Government and other system partners on longer-term reforms to ensure there are proportionate financial reporting as well as audit frameworks.

“These measures may present challenges in the short term, but they are essential for rebuilding a robust and sustainable local audit system. The FRC is dedicated to supporting all stakeholders through this process and working towards our shared goal of timely, high-quality financial reporting and auditing in local government.”