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February 7, 2011

UK public sector audits fees to rise

The scraping of the audit commission will result in higher audit fees with most of the work going to the Big Four, the UK House of Commons communities and local government select committee inquiry was told.

Professor of accountancy at University of Aberdeen David Heald said auditors will have to charge higher fees to local authorities in order to pay for insurance that is currently covered by the audit commission itself.

“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,” Heald said.

Heal predicts that councils will favor the Big Four, which will lead to greater market concentration

“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 currently do. What the audit commission did or does is build up providers in a managed market,” Heald explained.

Aftermath of abolition

Cardiff University professor of public policy and management Steve Martin said the abolishing of the audit committee was not a policy driven decision.

Heald said there were no reports reviewing the audit commission’s work prior to the August announcement of it being scrapped.

“There has been a fundamental failure by the government to review the audit commission,” he added.

Guardian public contributing editor and former audit Commission head of communication David Walker said the government should provide information on what the benefits of abolishing the Commission will be.

“There should be some release of figures on how the money is going to be saved by abolishing the audit commission,” Walker said.

The government select committee is to hear from several more witnesses as part of the examination into future arrangements for local authority audit and inspection.

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