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Thursday, 18th April 2024
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Audit and accountancy Bill to restore confidence in professional services Back  
Peter Carroll welcomes a new Bill which will establish a supervisory authority for the accountancy and auditing professions.
It is timely that the T?naiste and Minister for Enterprise, Trade and Employment has published the draft Companies (Audit and Accountancy) (Amendment) Bill (‘the Bill’). Arising out of the Public Accounts Committee (‘PAC’) inquiry into DIRT, the T?naiste set up the Review Group on Auditing in February 2000 which reported to the PAC in July 2000. The Irish Auditing and Accountancy Supervisory Authority (‘IAASA’) was established in April 2000 to overhaul the regulation of the accounting profession and has spent much of its time to date assisting in developing a new regulatory framework and in drawing up the draft scheme for the Bill. Given the background of the DIRT scandal and the various ongoing tribunals, international concerns related to the collapse of Enron and the role played by its auditors, accounting concerns at Elan and the irregularities in AIB’s subsidiary Allfirst, legislation which will help restore confidence in the accounting and auditing profession and provides statutory backing for their disciplinary process is to be welcomed.
The Bill establishes the Supervisory Authority (‘Authority’) and sets the maximum number of directors it may have at 12, to be appointed by the Minister from various business interests including the accounting profession, IBEC, ICTU and the Revenue Commissioners. The objectives of the Authority set out in the Bill are to supervise the accounting profession’s regulation of its members, promote high professional standards within the accounting profession and to advise the Minister on auditing and accounting issues. Among its many functions are:
• The supervision of the accounting profession in its monitoring of its members;
• Supervising the investigation and disciplinary procedures of the accounting bodies;
The Bill effectively provides the Authority with the power to carry out its stated objectives and functions including the power to undertake independent reviews of members and to intervene in disciplinary proceedings where, in its view, the investigation and disciplinary procedures are not being correctly followed and applied.
The Authority will be required to submit to the Minister a three year work programme setting out its key strategies and activities together with key performance indicators and outputs. Although the Bill formally sets out the objectives and functions of the Authority, these have been known for some time, and therefore it is this work programme which will provide the first indications of how the Authority will interact with the accounting profession on a day to day basis. This will be an eagerly awaited document particularly as it should identify the criteria by which the effectiveness of the Authority may be judged. The Authority will also be required to report progress in implementing its work programme to the Oireachtas on an annual basis.
The Authority has wide ranging powers enabling it to investigate alleged misconduct, enquire into the conduct of ongoing enquiries and ultimately, if not satisfied with an investigation completed by the relevant body, it can carry out its own investigation with full access to all relevant people and documentation. It will be important that a working relationship is quickly established between the Authority and the accounting bodies with regard to investigations and disciplinary hearings. Failure to do so will result in the Authority acting effectively as a court of appeal in relation to such hearings, a situation which the accounting bodies will strongly object to as it will effectively render their disciplinary procedures irrelevant and mean the end of self-regulation. Such an outcome is also unlikely to be welcomed by the Authority given its objective is to supervise rather than directly control the manner in which the accounting bodies regulate their members.
Although the Authority has been given the authority to undertake independent reviews of auditing firms this would again appear to be a duplication of effort. It will be important for the Authority to satisfy itself that the relevant accounting bodies are adequately monitoring their members. However, given the nature of the current process implemented by the Institute of Chartered Accountants in Ireland, whereby a monitoring unit (jointly owned by the Institute of Chartered Accountants in England and Wales, the Institute of Chartered Accountants in Scotland and the Institute of Chartered Accountants in Ireland) carries out a detailed review of the member firms and provides a detailed report of its findings to the Institute who will decide on any appropriate action required, it should be sufficient for the Authority to supervise or oversee this process. A review of the findings and documentation held by the monitoring unit should be sufficient for the Authority to conclude on the adequacy of the body’s monitoring of the member firm without having to undertake a further review.
Given the remit of the Authority, many of its functions will naturally duplicate those already established by the accounting bodies and, considering the large funds spent by these bodies already in these areas and the fact that the accounting profession will be required to fund 60 per cent of the estimated ?1.5m cost of the authority, all parties should be keen to ensure an effective and efficient working relationship. As can be seen, the price of continued supervised self-regulation to the members of the accounting profession will not be cheap.
The Authority has been given the power, in cases drawn to its attention, to review the financial statements of public limited companies and large private companies or groups of companies and request explanation or revision of those financial statements.
The Authority is to determine various size criteria for the definition of large private companies, similar to those set out in the Companies (Amendment) Act, 1986 defining large, medium and small companies. A study on the size and categories of Irish companies registered with the Companies Registration Office is currently being undertaken by PricewaterhouseCoopers and began in January 2002. It is to be hoped that this will lead to an increase in the criteria applicable to small companies too much more meaningful levels then those currently imposed. This is an opportunity for the T?naiste to substantially reduce the regulatory burden currently placed on SMEs. If the T?naiste is serious in wanting to reduce the regulatory burden currently placed on SMEs then the turnover level should be substantially increased. At present the corresponding figure in the UK amounts to ?1 million, a figure which is considered by the business community to be too low. The Company Law Review in the UK is considering whether companies with a turnover between ?1 million and ?4.8 million should have the audit of their accounts replaced by a lighter, less costly form of assurance. However, given self assessment and the ability of the Revenue to police compliance through its own revenue audit function the burden of an audit on companies within these limits should also be removed.
One further area worthy of comment in the present climate, and the increased concern regarding auditors’ independence, is the requirement to disclose, in the notes to the annual financial statements of a company, the remuneration paid to the auditor for audit and non-audit services. The nature of the work carried out by the auditor, other than in his/her capacity as auditor, will also require disclosure in the financial statements.
The draft Bill, published in the form of the General Scheme of the Heads of the Companies (Audit and Accountancy) (Amendment) Bill, has received the approval of the Government, and has been referred to the Parliamentary Counsel to draft the text of the Bill. The T?naiste has stated that she would ‘hope to be in a position to publish the official text of the Bill during the lifetime of this D?il’. However, given the fast approaching general election, it would appear that enactment of the Bill will have to wait.
The Bill and the Authority are to be welcomed and provide the various accounting bodies with an opportunity to show that self-regulation has worked in the past and that the improved supervised self-regulation will serve us well in the future. In general, the accounting profession has suffered from the fact that, due to the nature of the work undertaken, any publicity tended to be negative publicity and therefore this Bill and the Authority provide an opportunity to redress this balance, at least in part.
The records held or created by the Authority will be, as far as possible given statutory limitations, subject to The Freedom of Information Act, 1997 and it will publish notice of the giving of advice, admonishment and/or censure imposed on any accounting body thereby improving the transparency with which the accounting bodies will be monitored. In order to ensure that this process works effectively it will be vital that the Authority and the accounting bodies work together in a practical manner, not just in the finalisation and implementation of the Bill, but also to ensure that the policy recommendations of the Review Group on Auditing are implemented and the desired benefits gained.

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