New regulator ARGA will act as system leader for local audit

The government has confirmed that newly announced regulator ARGA (Audit Reporting and Governance Authority) will become the system leader for local authority and health audit, as part of its response to the consultation on local audit framework published yesterday.

The Local audit framework consultation response also announces plans to make audit committees compulsory for all councils, with each audit committee required to include at least one independent member.

Ahead of ARGA’s establishment, a shadow system leader arrangement will start at the Financial Reporting Council (FRC) from September 2022. This will be led by Neil Harris, who joins as the FRC’s first Director of Local Audit to start up a dedicated local audit unit.

Sir Tony Redmond was commissioned by the (now) Department for Levelling Up, Housing and Communities in July 2019 to undertake an independent review in response to the mounting delays in the local audit system, which was published in September 2020.

Local Authority financial Reporting and financial auditing made recommendations relating to the quality, transparency, timeliness and sustainability of local audit. A key recommendation was for clear system leadership to be established across the local audit system.

Alison Ring, Director of Public Sector and Taxation at the Institute of Chartered Accountants of England & Wales, said:

“We welcome the establishment of a system leader for local audit as a step to fixing the current crisis in the local audit system."

However, Ring stressed that improvements to local authority financial reporting and financial management were necessary in order for ARGA’s new team to be effective: “There is a pressing need for measures to make accounts more accessible and for ARGA to have powers over audited bodies.”

ARGA will also have new powers to be able to investigate and fine directors of large companies if they breach their duties around corporate reporting and audit.

Ministers have been under pressure to overhaul auditing rules after the collapse of Carillion and BHS, which cost in excess of 20,000 jobs and saw their auditors fined more than £25m in total.