David Heald, professor of accountancy at the University of Aberdeen Business School, said that auditors would have to charge local authorities higher fees to pay for insurance, which is currently covered by the commission itself.
Speaking at the first hearing of the Commons communities and local government select committee inquiry on the future of council auditing, he said: “One of the reasons I am skeptical of audit fees going down is that private audit firms will have to buy insurance in the market, meaning that some councils will find it very hard to get audited.”
He also warned that there will be a concentration of the audit market.
“My prediction would be that when councils do pick their own auditors, there will be a rush to appoint the Big Four for the same reputational reasons that universities and foundation trusts do now. What the Audit Commission does is build up providers in a managed market.”
David Walker, the former head of communications at the commission, said that there should be a slimming down of the auditing process in local government.
Currently, auditors have a duty to produce value-for-money reports that recommend the best practice for councils in a variety of areas. However, Walker said that in an era of austerity, it is not the job – or area of expertise – of auditors to prescribe performance management techniques. Instead, he said, auditors should focus on verifying the accounts and probity of local authorities’ financial reports.