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Accounting profession faces a period of uncertainty Back  
Peter Carroll examines why the accounting profession is about to enter a period of uncertainty due to the issue of self-regulation.
In July 2000 the review group on auditing issued a comprehensive report to the Public Accounts Committee. The report has been closely studied both by the Táiniste and the Minister for Enterprise, Trade and Employment and her Department.

The controversy, which was caused by the PAC (public accounts tribunal into the DIRT Issue) commenced an important debate on the system of auditing which operates within this country. While specific issues dealt with at the PAC Tribunal related to the financial services industry, the debate very quickly focussed on the whole area of self-regulation by the profession. The Minister and the Institute of Chartered Accountants in Ireland have both issued a detailed commentary on the recommendations in the review group€s report. Recently this commentary has been added to by recent press releases from a number of the €Big 5€ firms, which have strongly argued that the profession should be allowed to regulate itself and that government intervention be limited.

I believe that over the course of the next 12 months the profession will see itself on the ropes once again regarding the whole issue of self-regulation.

The report of the Review group contained a number of the key recommendations:

€ Making the individual accountancy bodies the basis for regulation.
€ Establishing an oversight board to supervise how the individual accounting bodies carry out their regulatory function. This board was originally recommended in a submission made by the Institute of Chartered Accountants in Ireland and is based on similar institutions, which are now successfully established in the United States and the United Kingdom. It is widely accepted that such authorities provide a platform for greater openness regarding regulation of the accounting profession. In addition, they also ensure that the users of financial statements and public interest are properly represented.
€ Providing statutory backing for the accountancy bodies disciplinary process and statutory support for the imposition of fines as part of that process. This was seen as necessary to strengthen the accountancy bodies ability to self-regulate.
€ Greater disclosure of fees paid for non-audit services in audited financial statements.
€ Closer working relationships between the profession and the Central Bank.
€ Focussing primary responsibility for compliance with statutory obligations on directors.

In April 2001 the Tánaiste and Minister for Enterprise, Trade and Employment established the new supervisory authority for the profession. The Irish Auditing and Accounting Supervisory Authority (IAASA) was established on an interim basis pending the legislation which will be drafted later this year and which will give the authority full statutory recognition.

Karen Erwin, group general council and director of The Irish Times heads up the interim board, with representation from social partners, users of financial statements and members from the accounting profession. Out of the 11 positions on the board, three of them have been allocated to the profession.

The interim board has three separate areas of work in the next twelve months:

€ Advising the Department of Enterprise, Trade and Employment on the necessary legislation to establish the IAASA on a permanent basis.
€ Drawing up a business plan to cover the first three years of the IAASA€s operation.
€ Advising the Department on the legislative changes to give effect to the other recommendations set out in the report of the review group.

The Minister and the Department are on record as seeking to ensure that a system is created for the future that encourages a culture of compliance in all areas of Irish corporate life.

I believe that this is in everybody€s interests but it is necessary to ensure that the changes in legislation do not create a system, which is either a burden to business or is out of step with our international counterparts.

There are well-grounded fears that the detailed plans now being drawn up by the Department for the IAASA will ignore many of the comments made by the profession and specifically the Institute of Chartered Accountants in Ireland in response to the report by the Review Group. There is genuine concern that current plans of the department will provide the IAASA with responsibilities and powers, which go way beyond those that are appropriate to an oversight board.

In particular, there seems to be a desire by the Government to get involved in individual disciplinary cases and to have an ability to bypass the profession. There has even been a suggestion that the IAASA will have the authority to reopen the cases that have already been presided over by the profession.

If such proposals were enacted it would, I believe, be a serious set back and would bring about a situation where our regulatory environment is out of step with current international practice.

At present, individuals and firms rarely challenge the authority of their profession to regulate them. The disciplinary processes of all accounting bodies have recently been reviewed and strengthened. The introduction of a second tier to the regulatory process and, in particular the disciplinary process, from an organisation which is a statutory body, could lead to a court of appeal syndrome. Such a development could lead to a more adversarial approach with firms involved in disciplinary proceedings seeking to be represented legally rather than a system of self-regulation where their peers judge them. This can only increase the costs and create time delays.

Finally, it is not clear whether a statutory body such as the IAASA could obtain the necessary expertise and
knowledge required to carry out an assessment of the performance of a firm€s quality control standards. Such resources and systems are already in place in the accounting bodies.

This time last year there was grounds for optimism that the Government would allow the profession to continue with the sensible approach of self-regulation. The next number of months will see the profession in further battle with the Government on this important issue.

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