Nearly a third of councils are behind in their preparations for new accounting rules, which come into force next year, according to an Audit Commission report.
The report said 31% (120 councils) were behind their project plans, with councils required to be fully compliant with International Financial Reporting Standards (IFRS) next year.
Significant improvement has however been made since November 2009, when the Commission last carried out research to gauge progress.
The report said overall there has been good progress but warned some authorities still face “significant challenges” to IFRS implementation.
It added: “Where local authorities fail to address issues there is a risk that auditors will qualify opinions on accounts or there will be delays to publishing accounts.
“At a practical level, if local authorities delay resolving any outstanding issues they risk incurring extra and unnecessary costs.
In November 2009, auditors reported that only 15% of authorities were on track to produce IFRS-compliant accounts and 21% of authorities were considered to be facing “serious difficulties” with implementation.
The latest report, based on research carried out in July, found 41% were on track while those facing serious difficulties had reduced to 6%. The remaining 53% of councils were considered to be facing minor difficulties, the report said.
Councils currently follow the Generally Accepted Accounting Principles, or GAAP, but the Accounting Standards Board wants all UK bodies, excluding a few small exceptions, to move onto IFRS, so they are more comparable.
Council finance experts say IFRS is a tougher requirement and since the move to introduce it for the sector was announced, districts in particular have raised concerns about additional reporting burdens.