THE EURO is in trouble, finance ministers are drowning in sovereign debt, and Brussels insiders say UK lobbyists have about as much credibility as a Greek bond. So why has the Department for Business stuck out its neck on audit reform?

A leaked BIS email called on European counterparts to lobby against the European Commission's proposed audit reforms and provided a draft briefing to coordinate member state complaints, the International Accounting Bulletin reported.

Big Four insiders said BIS has been "sympathetic and responsive" to their concerns about the proposals, which include mandatory auditor rotation and joint audits for the largest companies.

Frequent dialogue between BIS and accountancy's top dogs might explain the government's eagerness to ensure anti-audit reform voices carry weight in Brussels.

One Big Four insider said the firms "know everything" BIS is up to, and "have to be told in advance" if its activities will significantly affect their business.

However, the mid-tier is also confident of its rapport with BIS. One top-ten firm spokesperson agreed the leaked email was "not very helpful", but insisted their relationship with the government department remains "good".

The email is all the more surprising given recent developments, including the referral of the audit market to the Competition Commission.

Brussels has implied its reforms will reduce concentration at the top of the market, and recent government actions - including the House of Lords inquiry and subsequent Office of Fair Trading investigation - suggest the coalition shares Brussels' concerns.

So why the apparent volte-face? Could it be that government is happy with a little nip-tuck in the UK, but an EU-wide regulatory cudgel is a bit too scary?

BIS has "severe concerns" that some of the EC's proposals "do not support EU growth ... impose unnecessary regulation on business" and could damage audit quality.

Mandatory joint audit and pure audit firms are its biggest bugbears, and it fears auditor rotation will be expensive and unpalatable to clients on quality grounds.

One critic has suggested the email is a "misguided" civil servant effort rather than a political statement, arguing it does not reflect the UK's official stance.

However, the force of its message and presumed distribution list might suggest something else - that BIS thinks Brussels' reform is a load of rubbish, and is prepared to put its money where its mouth is.

Experts have criticised the European Commission's approach to audit reform, saying proposals bear no relation to supposed problems, and the whole shebang stems from internal markets commissioner Barnier's deep dislike of the Big Four.

Given the sensitivities around audit reform and the UK political backdrop - Cameron recently faced his biggest parliamentary revolt as 79 backbenchers called for a referendum on Europe - it seems BIS's dislike of Barnier's plans is too strong to be stifled.

THE WORLD of local government audit is in flux. Audit Commission spin-off mutual, DA Partnership, maintains its shadowy persona; 70% of former commission work is out to tender, and the government is busy poring over responses to its recent consultation.

At the centre of all this change, the National Audit Office has been a silent observer. The Department for Communities and Local Government has suggested it take on many former commission responsibilities, but its future role remains unclear.

DCLG has a wish list of jobs for the public money watchdog: prepare the audit codes of practice; consider best practice and value for money; oversee auditing standards and examine the impact of locally administered policies.

This is on top of the NAO's traditional role auditing central government and begs the question, just how far will its influence spread?

As yet, DCLG's plans for who should assume these functions are no more than suggestions, but it seems unlikely that the NAO will turn its back.

A spokesman said the body has "very little to say on the matter" while it is still in discussion at Westminster. However, he confirmed the NAO will not be carrying out local audit, but will "probably" be involved in standard setting.

The Auditing Practices Board has overall responsibility for audit standards, and the Audit Commission has restricted itself to setting codes of practice defining the scope, nature and extent of work.

Does this mean the NAO will simply assume the commission's code setting role, or will it go further? Why doesn't the APB take on both roles? And if the NAO is to oversee auditing standards, are the audit standard setters disempowered?

The codes focus on value for money and require auditors to give their opinion of local government efforts. The NAO has a similar oversight function in central government, and DCLG has suggested the two roles be combined.

MacIntyre Hudson chairman Rakesh Shaunak thinks the NAO has a bigger part to play, suggesting it will become both regulator and commissioner. "As the ultimate custodian of the government purse, it would be logical for the NAO to take on these two strands."

And he could be right, if the recent hiring of former Kent County finance director Lynda McMullan is anything to go by.

The new assistant auditor has 20 years' experience in local government and could lend the watchdog gravitas in post-Audit Commission Britain, allowing it to carve out a central spot in the debate.

NAO chief Amyas Morse (pictured) said McMullan will contribute "her extensive local government experience to our organisation as the importance of local service provision becomes ever clearer. At a time of significant change in the public sector, she will bring a fresh perspective to our work."

McMullan might find herself examining the impact of policies administered by local authorities, another responsibility DCLG is keen to hand to the NAO.

A source close to the issues suggested public finance institute CIPFA could also take on this role. If so, division of responsibilities between the two will be a key question.

With local public audit up in the air, it seems there are just a few things to be sure of. Firstly, DCLG sees a sizeable chunk of responsibilities heading the NAO's way. Secondly, former commission-delivered audits are up for grabs, and the division of contracts could change the audit landscape significantly. Finally, winding down such a big and multifaceted organisation is infinitely complex, and stakeholders must work very hard to ensure nothing falls through the cracks.