‘No longer needed’ to improve local authority reporting, says ICAEW
ICAEW’s response to a CIPFA LASAAC consultation asked the head of the local audit system to take a “whole system approach” to addressing infrastructure reporting issues.
Regular emergency consultations on proposals to temporarily lower financial reporting standards are not the best approach to addressing the local audit and reporting crisis, ICAEW said in its response. to a consultation on the proposed temporary amendments to the CIPFA LASAAC local authority accounting code.
The consultation follows CIPFA’s establishment of a “working and finishing group” to develop a solution to infrastructure asset reporting issues that were raised by auditors in March 2022.
Deficiencies in historical information, compounded by inappropriate existing practices, would have resulted in cumulative overstatements of the gross historical cost and cumulative depreciation of infrastructure assets reported in local authority accounts.
Additionally, the lack of granularity of asset records has “hindered the ability of auditors to obtain sufficient assurance on the net book values of infrastructure assets”, despite the historical cost valuation basis.
The auditors report that this issue is causing delays in completing the 52% of local authority audit accounts from 2020/21 that are still outstanding.
The deadline for publishing the 2020/21 audited accounts was September 30, 2021.
The ICAEW response expressed agreement with CIPFA LASAAC that further audit delays are “not in the public interest” if they can be avoided and, therefore, a temporary solution to this reporting problem. infrastructure is needed. The ICAEW recommended more affirmative wording of the proposed amendments to reduce the risk of differences in interpretation.
The consultation also recommends that the Audit, Reporting and Governance Authority (ARGA), as the new leader of the system, be “best placed” to develop this whole system solution. However, he cautions that ARGA may find it difficult without the same powers over the preparation of local government financial statements.
Oliver Simms, Head of Public Sector Audit and Assurance at ICAEW, said: “We commend the leadership that CIPFA LASAAC has shown in seeking to mitigate delays in local authority audits caused by infrastructure asset reporting issues.
“ICAEW does not support the temporary lowering of reporting standards, but accepts that it is preferable to the alternatives of significant delays or widespread qualifications in these circumstances. However, ICAEW would strongly object to the amendments temporary become permanent.
He added: “We believe ARGA is best placed to develop a long-term solution, but its effectiveness could be hampered by insufficient financial reporting powers. We urge the government to grant ARGA powers over the preparation of local authority financial statements to ensure that it can take the lead in addressing issues like this and be an effective system leader to the local audit.