Government announces backstop on audited accounts amid rising backlog

In a statement to the House of Commons yesterday (30 July), the Minister of State for Local Government, Jim McMahon, said a series of further backstops will also be implemented for the next four years.

The move is aimed at addressing backlogs that saw just 1% of local bodies publish audited accounts on time last year, with the backlog likely to increase to around 1,000 by the end of September.

The secondary legislation will set a statutory backstop of 13 December 2024 for the publication of audited accounts for all financial years up to and including 2022/23.

The Government says this immediate step will help clear the logjam and enable a focus on recent accounts to provide the most up-to-date information.

Due to the time constraints, the Government predicts that not all audits will be completed in full by the December backstop. Where this is the case, auditors will issue 'disclaimed' or 'modified' audit opinions.

The Government believes auditors are likely to issue hundreds of such 'disclaimed' audit opinions, and disclaimed opinions will likely continue for some bodies for a number of years.

In a statement announcing the new approach, the Government added: "Local bodies should not be unfairly judged based on disclaimed or modified opinions, caused by the breakdown in the system and the introduction of backstop dates that are largely beyond their control."

The proposals also set backstops for the ensuing financial years up to 2028.

It also proposes setting the following backstop dates:

• Financial year 2023/24: 28 February 2025 
• Financial year 2024/25: 27 February 2026 
• Financial year 2025/26: 31 January 2027 
• Financial year 2026/27: 30 November 2027 
• Financial year 2027/28: 30 November 2028

The Government stated that there would be "very limited and specific exemptions" from the backstop dates. Where exemptions apply, the body must provide a public explanation, and audited accounts must still be published as soon as practicable. 

Any bodies that fail to comply with a backstop date would be required to publish an explanation, send a copy to the Secretary of State, and publish audited accounts as soon as practicable.

The Government will also publish a list of bodies and auditors that do not meet the proposed backstop dates. 

The measures will be supported by guidance to auditors issued by the Comptroller and Auditor General (C&AG) and endorsed by the Financial Reporting Council.

Whitehall intends to engage with stakeholders in the coming months to "make clear the necessity of the steps" and emphasise the context for disclaimed opinions.

The Government also plans to lay a new Code of Audit Practice in Parliament and intends to set out its longer-term plans to fix local audit this Autumn.

Jim McMahon said: "We know how important local services are to our communities and how vital it is councils, and other local bodies, have the financial transparency needed to continue to deliver them.

"These proposals will tackle the immediate challenge of the backlog, but work is also underway to deliver our manifesto commitment to overhaul the system to ensure it is fit, legal and decent and works for everyone."

The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Institute of Chartered Accountants in England and Wales (ICAEW) have both welcomed the announcement.

Owen Mapley, CIPFA Chief Executive said: "This is an important step to address the backlog and re-establish timely financial reporting and audit in England.

"CIPFA remains committed to supporting work taking place across the local audit system and calls on all public finance professionals to continue the work they are doing to provide transparency and accountability through their accounts to the communities they serve."

Alan Vallance, ICAEW Chief Executive, meanwhile said: "The current delays in publishing financial statements have led to unacceptably low levels of accountability of some local authorities.

"By setting backstop dates there is a reset of the audits of financial statements, which is an important step to restoring credibility and preventing backlogs recurring in the future."

Adam Carey