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Wednesday, 5th August 2020
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Regulatory environment continues to change for auditors Back  
As the auditing profession looks forward to 2002 the only certainty is that the level of regulation will continue to grow. Peter Carroll says it is important that the Irish Government takes account of the international changes, both SEC and IFAC led, but hopes that the legislation for IAAS does not put Ireland out of line with international counterparts.
The audit profession is facing a number of regulatory changes. While the last year has seen the creation of a new, supervisory authority in the form of The Irish Auditing and Accountancy Supervisory Authority (IAAS), the interim board is still in ongoing consultation with the department of Enterprise, Trade and Employment. The enabling legislation for the authority was originally expected to be released in December this year, but is not now expected until March 2002.

The profession still remains concerned about the level of involvement which the government wants for the authority. Many believe that authority maybe given a role which duplicates the responsibilities of the existing accountancy bodies. There is a fear that we could create a multi-tier regulatory and disciplinary process for the profession, which would lead to a situation where the authority of the accountancy bodies is undermined. This would put Ireland in a more regulated, less business friendly environment, which may hamper efforts to grow and develop our financial services sector.

While the outcome of the consultation process between the interim board of the IAAS and the department remains uncertain, there have been a number of other developments which affect the regulation of the profession, these include:
€ Publication by the Auditing Practices Board of a guidance note to auditors of banks in Ireland
€ Appointment of a new director of corporate enforcement.
€ Implementation of new SEC independence rules.
€ Emergence of a more co-ordinated international approach to audit regulation.

On the 3rd of August the Auditing Practices Board issued a draft practice note providing up-to-date guidance to auditors of banks in Ireland. The Institute of Chartered Accountants in Ireland led the project group which drafted the practice note on behalf of the Auditing Practices Board and there was extensive consultation with a number of government agencies and in particular with the Central Bank.

The report is quite comprehensive and deals with a number of issues raised by the review group on auditing. In outline the issues addressed are as follows:
€ Guidance in relation to non-audit work carried out by an auditor on behalf of a financial institution.
€ Guidance is also provided in relation to the issue of liaison between the Central Bank and external auditors of financial institutions. The Institute of Chartered Accountants in Ireland is currently in the process of establishing a form of banking practitioners to discuss how this process can be made effective.
€ A procedure whereby the Central Bank can receive the management letters from external auditors at the same time it is issued to the client.

The practice note has not dealt with a number of issues raised by the review group on auditing and it is expected that these will be covered by forthcoming legislation including the Central Banks power to obtain reports from external auditors on their assessment of internal control systems and obtaining access to audit working papers.

Appointment of Director of Corporate Law Enforcement
The creation of a new corporate enforcement office is now complete following Mr Paul Appleby€s appointment. In his opening days in office, Mr Appleby has outlined a number of areas of interest to him and has indicated that he will be working closely with the profession. It is expected that his office will focus initially on:
€ Liquidators€ reports on failed companies.
€ Auditors reports particularly where they are qualifying their reports on financial statements on the basis of lack of proper books being maintained by directors.
€ Taking over certain investigations currently being undertaken by the Department of Enterprise Trade and Employment.

It is expected that the profession will have a greater input into corporate enforcement. In recent years the profession has taken a position that it has not been legally able to be involved in such actions. The government formed the view that the reason of client confidential was being used all too often. The enabling legislation for the director allows the office to review the files of auditors to provide them with the information in relation to enforcement actions.

Implementation of new SEC independence rules
While the US Securities and Exchange Commission rules on independence of auditors were published in February of this year, it is only now that we are seeing how widespread and far-reaching their implications are. The rules were the subject of most intense debate between the SEC and the big five accounting firms.

These rules apply to Irish firms where they are auditors to US registered public companies and their subsidiaries with operations in Ireland. The range of services that can be provided to such clients has been curtailed. In particular, the provision of accounting support, payroll, certain advice on mergers and acquisitions, and certain valuations by auditors are largely prohibited. These services have in the past provided high margin additional revenue to the audit firm.

It is expected that many of these services will migrate to the non big five firms who have specialised expertise in these areas.

Co-ordinated international approach
The International Federation of Accountants (IFAC) which sets international standards on auditing and ethical standards for global use and supports the work of the International Accounting Standards Board (IASB) in setting and promotion of international accounting standards, has been examining its own role as an international regulator. Many commentators believe that the next three years will see a battle between IFAC and SEC over which standards are accepted globally. The move to one set of international standards for financial reporting and auditing is highly desirable within the ongoing globalisation of the capital market.

IFAC€s current restructuring involves a number of initiatives including:
€ Broadening membership of the International Auditing Practices Committee.
€ Establishing a new self-regulatory system for firms performing transnational audits.
€ Establishing a public oversight board for IFAC.
€ Introduction of a monitoring program for IFAC member bodies, with IFAC standards.

Plans are advanced for the introduction in early 2002 of a global peer review system involving the seven largest international accounting firms (Andersen, BDO, Deloitte Touche, Ernst & Young, Grant Thornton, KPMG & Pricewaterhouse Coopers).

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