A return to Group Reporting timetables

Local authority owned trading company results, are consolidated in the respective council accounts, and these are audited by the group auditor.

The group auditor is responsible for issuing an audit opinion on the consolidated financial statements, as well as the Council’s individual accounts. The group auditor needs to ensure they have gathered sufficient appropriate audit evidence, to support the opinion that there are no material misstatements or omissions in the consolidated financial statements.

In assessing materiality, the group auditor must consider what amounts derived from a subsidiary, are material to the group financial statements and obtain adequate audit evidence.

The audit evidence can be obtained by the group auditor carrying out procedures directly on the subsidiary, or by relying on work done by another auditor. The most common route is for the group auditor to send group audit instructions and a group reporting pack, to the component (in this case LATCO) auditor.

In recent years, group audits of councils have been delayed with many reasons cited for the failings in timeliness, including; resourcing constraints, COVID, and the increased complexity of financial statements. The government have now acknowledged that this backlog has grown to an unacceptable level and has issued a joint statement.

See: https://www.gov.uk/government/consultations/addressing-the-local-audit-backlog-in-england-consultation/local-audit-delays-joint-statement-on-update-to-proposals-to-clear-the-backlog-and-embed-timely-audit

The highlights from this report are:

To clear the backlog of historical accounts and ‘reset’ the system, the Department for Levelling Up, Housing and Communities (DLUHC), proposes putting a date in law (the ‘backstop date’) – 30 September 2024 – by which point local bodies would publish audited accounts for all outstanding years up to and including 2022/23.

The backstop date is likely to be a factor in local auditors issuing a modified, or disclaimed opinion on outstanding accounts if they do not have enough time to complete all audit work before that date. It is important that local bodies, residents and other account users, can distinguish between modified and disclaimed audit opinions caused by the introduction of backstop dates and those that indicate significant financial reporting, or financial management issues.

Taken together with the proposal outlined in ‘Phase 1’ for a backstop date of 30 September 2024 for all years up to and including 2022/23, the government is now consulting on the following additional backstop dates:

What we are seeing in practice is the modification to group audit opinions for the prior years and as such, no group packs issued for assurances of consolidated balances from the subsidiaries of the council for these financial years, but a return to the norm for the 2023/24 year, but with deadline dates in line with the backstops proposed.

Whilst this is a highly unusual situation, a solution to bring the position back in line with an acceptable timetable, can only be seen as a positive step for governance and transparency.