Block the Big Four from Audit Commission takeover

AN INFLUENTIAL Commons committee is urging the government to prevent the "Big Four" taking over the audit practice of the doomed Audit Commission.

The Communities and Local Government Committee has called for the audit arm of the commission to become a standalone practice, preferably in the form of a mutual company capable of competing for local authority audit and value-for-money work.

The plea follows a series of hearings into Communities and Local Government Secretary Eric Pickles' controversial decision to scrap the commission.

The committee, which has a majority of coalition MPs under the chairmanship of Labour MP Clive Betts, said it believes that local authority control of audit and performance assessment provides opportunities to improve value-for-money work focused more closely on local priorities.

It said the "command and control" approach of the commission involved costs exceeding benefits and was unpopular with local authorities, though it warned that change involves significant risks to accountability for public money and urged that planned legislation in the autumn must uphold the principle of auditor independence.

Betts said: "The government must help the Audit Commission's own audit practice to realise a smooth transition to becoming a standalone body that retains its skilled staff and remains a major player driving best practice in the public audit sector.

"In a crowded market already dominated by too few players, we favour the establishment of a standalone company – preferably a mutual – and firmly oppose one of the Big Four commercial audit firms taking over the Audit Commission's audit practice."

Prompted demand

The committee's demand follows a Lords Economic Affairs Committee report voicing concerns about the effect of the big four "oligopoly" on competition in the audit market and the Office of Fair Trading's decision to consult on how to deal with the problem.

MPs urged that Pickles' proposed legislation must set out a number of key principles to govern public audit arrangements in the future, including auditor independence, an independent majority on committees responsible for the appointment of auditors, safeguards to ensure public interest reporting and a proportionate and risk-based approach to the scope of audit – to permit local innovation with value-for-money work.

Betts said that the commission had provided the public with a means to assess the relative performance of their own local council. He commented that his committee believed local authorities should focus on comprehensive local reporting against local objectives but recommended that the need for comparative data should be reviewed in two years after the new arrangements have bedded in.

The committee also called on the Department for Communities and Local Government to clarify arrangements for intervention in cases of serious corporate or service failure.

Pickles accused the commission of wasteful practices and crippling bureaucracy: it has been responsible local audit regulation while its own staff carried out 70% of the work and commissioned the remainder from five private audit firms.

The commission has itself suggested that it should remain in existence in a truncated form to regulate local auditors and ensure their protection from interference by local authorities.

Some functions residing currently with the commission, including responsibility for the Code of Audit Practice, and national value-for-money studies, will pass to the National Audit Office.