Prospect has called on the government to act on recommendations from a group of MPs and create a stand-alone body from the Audit Commission's own audit practice, or risk accusations of creating a mechanism to transfer public funds to private hands.

The request comes as the Communities and Local Government Select Committee published its report on the audit and inspection of local authorities following the abolition of the Audit Commission.

Committee chair Clive Betts said: "The government must help the Audit Commission's own audit practice to realise a smooth transition to becoming a stand-alone 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 stand-alone company, preferably a mutual, and firmly oppose one of the 'Big Four’ commercial audit firms taking over the Audit Commission's audit practice."

The group of cross-party MPs also condemn the manner in which the watchdog's abolition was 'announced and progressed’ by ministers, saying it might have resulted in “a missed opportunity for what could have been a valuable reassessment of the arrangements for public audit.”

The union's response also echoed the committee's call for a wide-ranging review of public sector audit once the new arrangements are in place. A Public Audit Bill will be introduced by the coalition in the autumn.