The recent ministerial statement issued on 30 July regarding the Government's plans to implement the audit backstop arrangements, has, overall, been welcomed by stakeholders

The proposed backstop, originally put forward by the previous government earlier this year, aims to address the existing backlog in local audits. This backlog has raised significant public concerns, in two main areas in particular. Firstly, that key stakeholders in local government have been left with limited or no assurance from external audit and secondly that financial mismanagement in a small number of local authorities has not had the audit scrutiny that government might reasonably have expected to be in place.

The local audit backstop is very much just the first step towards effectively resetting the local audit system – there is more that needs to be done

The proposal for the backstop, while not a perfect solution by any means, is currently the most practical option available to address the pressing issue. The key part of the proposal is moving forward from 2025. According to the proposed timetable, once the February 2025 backstop is finished for 2023-24 audits, all auditors would then focus on 2024-25 audits, thus bringing the whole system up to date. This will be a significant step towards ensuring that the sector and the public are getting the most value from the local audit system.

The timely production and auditing of council accounts, along with regular engagement between senior stakeholders and auditors to ensure effective governance and decision-making, are critical to this. The additional proposal from the National Audit Office that auditors have a mandatory requirement to produce a value for money report by 30 November 2025, and annually thereafter, is also seen as a move in the right direction to ensuring this.

The local audit backstop is very much just the first step towards effectively resetting the local audit system – there is more that needs to be done. A long-term solution is still essential, as noted by the commitment made by the local government minister in the 30 July statement. But, before considering the possible solutions, it's important to understand how the sector got here.

The delays we have seen in audited accounts are not just due to the capacity issues that many audit firms have been facing. Many local authorities have also been facing their own resource challenges, while some were stymied in their production of accounts by contested accounting judgments which require both external accounting and legal advice.

The complexity of the Chartered Institute of Public Finance and Accountancy Accounting Code, derived from international financial reporting standards, has also increased the workload of account preparers and of auditors. There have also been new auditing standards and requirements iintroduced in the last decade that have increased the volume of work for all auditors and regulatory bodies. All of this has been carried out in a regulatory environment informed by well-publicised corporate audit failings which has necessarily increased scrutiny on those firms who deliver local audit.

Since the dissolution of the Audit Commission in 2015, leadership of local audit has been split between a number of organisations. One notable proposal from the Redmond Review into local audit (commissioned in 2019) is the establishment of an independent Office of Local Audit Regulation (OLAR). The Office's intended purpose would be to manage, oversee and regulate local audit, with the following key responsibilities:

• procurement of local audit contracts
• production of annual reports summarising the state of local audit
• management of local audit contracts
• monitoring and review of local audit performance
• determining the code of local audit practice
• regulating the local audit sector

In order to bring clearer focus to the local audit sector, the Government should now seriously consider prioritising the implementation of the recommendations in the Redmond Review and expedite the establishment of an OLAR to oversee and direct the audit system by, if Parliamentary time permits, 1 April 2026. As, while the proposed backstop offers a temporary solution, urgent action is still needed to instil confidence in the future sustainability of the local audit market.

Long-term solutions and changes, such as this, are essential to provide the necessary assurance to local authorities and auditors on the outlook of the sector moving forward.

Paul Dossett is head of local government at Grant Thornton

@GrantThorntonUK