Shetland Islands Council faces difficult financial decisions in its efforts to continue delivering high-quality services, a report has found.
The Accounts Commission report revealed that while the local authority has made significant progress in addressing problems, it faces major challenges in the future.
The follow-up report was carried out by the Controller of Audit after previous reviews highlighted concerns about working relationships and governance at the council, and the management of finances.
The Commission welcomed the council's progress, particularly improved relations among councillors and between councillors and officers, and the significant improvements in how it manages finances and information.
However, it warned that careful consideration of options and costings would be required if services for islanders are to be delivered sustainably in the future.
Progress at the council was aided by local government elections in May last year, after which the council appointed a new political leader and convener, and welcomed 13 new councillors.
The Commission found that the new leader and the convener have been working well together and, with other members, are setting a clear direction for the council.
Accounts Commission chair John Baillie, said: "This is a very positive report.
"There has been a real desire to tackle long-standing problems at Shetland Islands Council. I am pleased that this has led to improvements in the way the council is run.
"It is vital that this positive momentum is maintained as the council faces major challenges to reshape services and continue to deliver for the people of Shetland in the years ahead."