'The Audit Commission welcomes the publication of the Department of Communities and Local Government's consultation paper on the future of local public audit. Consultees and Parliamentarians will want to debate these issues fully. There are likely to be three key issues in the debate - safeguarding audit independence, accountability to government and Parliament, and the impact on audit competition and costs.
'External audit is an essential element in the process of accountability for public money. So it is right that councils and other stakeholders should now have the opportunity to consider and comment on the government's proposals for the new system of local audit, and the significant practical and financial implications for them.
'We accept that we are to be abolished. Our only aim therefore is to ensure that the future arrangements for local public audit are robust and sustainable in professional, technical and economic terms. To that end, we have worked closely with DCLG and other stakeholders, including the National Audit Office, the Financial Reporting Council and the professional institutes to help develop the proposals. Unsurprisingly, we agree with some, but not all, aspects of the proposals and we will submit a response to the consultation paper.
'Some councils have gone to extraordinary lengths to prevent an auditor issuing a public interest report, including lobbying to have the auditor removed. That is why we set such store by the principle of independent appointment, as we set out in our evidence to the current CLG Select Committee inquiry (external link). The government's proposals for audit committees with a majority of independent members will go some way to safeguarding auditors' independence, but it is too early to judge if the safeguards will be sufficient.
'The independent appointment of auditors has a long history. In our view, and the view of Parliament when this was last debated, it remains an essential safeguard and should not be discarded lightly.
'Government departments, and Parliament, to which they are accountable, need assurance that the billions of pounds of public money given to local public bodies have been safeguarded, accounted for properly and spent for the purposes intended. They get this currently from the Commission's arrangements to coordinate, and assure the quality of, appointed auditors' work. How will they get this assurance under the proposed fragmented, regulatory framework?
'It is likely there will be real market competition for the bigger, more commercially attractive authorities, which may drive down prices for them. But, there is a risk that the new arrangements will reduce rather than increase competition. That is why we are keen to preserve the specialist knowledge and expertise of the Commission's in-house audit practice, through the establishment of a new, employee-owned audit firm (or 'mutual'), to provide all local public bodies a wider choice.
'Once the Commission is abolished, local public bodies will not have to pay the element of the audit fee that is levied to fund the Commission's core statutory functions such as audit regulation and national studies. In 2011/12 this amounts to around £11 million or 7 per cent of audit fees. But we are concerned that the proposals will introduce extra costs, which could lead to increases in audit fees for many bodies.'