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The future for accountancy looks strong Back  
Managing partners from leading accountancy firms in Ireland participated in an e-forum conducted by Finance to address the issues faced by the industry. The participants were Jerome Kennedy from KPMG, Donal O‚€ôConnor from PricewaterhouseCoopers, Pat Kenny from Deloitte & Touche and Roderick Ryan from Andersen.
What are the main changes you see ahead for the practice management now that the Audit Review Group recommendations have been adopted?

Kenny: The legislation adopting the Review Group on Auditing recommendations is still awaited and until this is available it may be premature to be specific as to any changes for audit firms and their clients.
Many of the recommendations are already best practice and hence do not necessitate any change for the audit firms. We already comply with strict independence requirements in line with ICAI and SEC requirements.

A lot of the recommendations have more implications for our corporate clients than for us as auditors. They will considerably extend the corporate governance requirements for many companies. Our concern is that, if implemented, these requirements will be onerous, costly and even impracticable for many of the companies to whom they will apply.

Kennedy: The Review Group has had the effect of making everyone in the business community more aware of the role of the external auditor and the exacting standards that the audit role involves, and I welcome that. The Review Group has also increased the awareness of the respective roles of Directors, the Audit Committee, and Internal Audit in contributing to an effective and efficient corporate governance environment. Judging the effects of implementation of new legislation is difficult as much will depend on the way in which the Government proceeds with its aim of introducing the Group‚€ôs recommendations into Law. We must be careful to avoid over regulation which will stifle indigenous companies, SMEs in particular and will also act as a deterrent to foreign inward investment at a time when we need to positively encourage it. I see many of the Group‚€ôs recommendations, as they effect managing an auditing practice, as consistent with the direction of global best practice.

O‚€ôConnor: The detailed implementation of the Audit Review Group‚€ôs recommendations will involve some new legislation and changes to professional regulations. The T√°naiste has recently appointed the Interim Board of the Irish Auditing and Accounting Supervisory Authority (IAASA), of which I am a member, to assist in this work. As a firm we wish to play our part in:
‚€Ę improving and enhancing public confidence in the role of auditors and the clients which they serve;
‚€Ę aligning Ireland‚€ôs auditing and regulatory arrangements with best international market practices;
‚€Ę ensuring that any changes in the auditing and general business environment are realistic, effective in practice, reduce the risk of audit failure and support the perception of Ireland as a competitive place to do business.

On changes ahead for the practice, in my view it will be the calibre of the people in the auditing profession, rather than the comprehensiveness of the rules, that will be the best protection.

Ryan: When the RGA reported in July 2000 their recommendations were broadly welcomed by the profession as a whole. While a lot has being going on behind the scenes since then, including the appointment of an interim Oversight Board, legislation to reflect the recommendations has not yet been published. With regard to practice management there is no doubt that additional Quality Assurance procedures will be required to ensure that all of the proposals issued by the RGA and subsequently made into law are adhered to. In addition it is likely that new auditing guidance will be published shortly, for example in relation to Auditing of Banks and liaison with Central Bank and other regulators. This will obviously have a significant impact on those of us who audit Banks.
In certain other areas the findings of the RGA reflect codification of existing good practice. There will nevertheless be an obligation on all of us to ensure that these higher standards are met and that confidence in the profession is rebuilt over the next few years.

We also look forward to some feedback on the probable size and annual cost of running the Oversight Board as this is to be borne 60 per cent by the profession. This will result in an additional burden on auditing firms and one which I believe should be kept to a minimum.

Finally, despite the additional controls and safeguards which have resulted from the findings of the RGA, it is imperative that we maintain our image as a dynamic and entrepreneurial profession and not one that is bound up in bureaucracy and red tape so that we can continue to attract the bright young professionals as we have managed to do so successfully in the past.

What is the future for audit within the group?

Kenny: The provision of audit services will remain the mainstay of the firm‚€ôs multidisciplinary service offering in the forseeable future.

Kennedy: The future for audit in general, and in KPMG is, I believe, a strong one. We see it as having a vital part to play in meeting the information needs of the international investing and business communities as well as those of our own communities here in Ireland - though its value can be under appreciated by some stakeholder groups. If we are to serve these communities effectively, it is essential that the response to the Review Group‚€ôs recommendations provides a transparent and constructive forum for debating the desired corporate governance model, including the role of audit, for Ireland‚€ôs future as a player in the international economy.

O‚€ôConnor: We see a bright future for audit and assurance services. It‚€ôs widely acknowledged that high quality reliable financial statements are a key factor in successful capital markets. By increasing investor confidence in companies, the cost of capital is reduced. We are investing heavily in further developing our audit process and in innovating financial reporting techniques such as Value Reporting. We are also responding to the demand for assurance about the security of internet transactions and e-business with new services such as beTRUSTed.

Ryan: Auditing has been and will continue to be one of our core competencies and this will not be impacted in any way by the findings of the Review Group. Clearly the Review Group has recommended some additional controls and safeguards in relation to scope of practice where the independence of the auditor might be impaired. Where this is so it may be that we can no longer carry out certain services for audit clients. However the implication of this is that we may become more focused on supplying these particular services to clients where we are not auditors. From the point of view of industry, it may be that certain companies now begin to develop a relationship with a preferred secondary provider of professional services where they are restrained from using their auditors as a result of concerns over independence or perceived independence.

How has this affected your business so far?

Kenny: We have not experienced any change.

Kennedy: I believe that all businesses must continually review their environment and seek to improve the way they interact with it. Ours is no exception, so we continually look for improvements and continually train partners and staff to keep pace with new developments.

One element that we will be looking at more closely is how we can increase the interaction with audit committees and their members, as they undertake the challenging roles set out for them in current corporate governance requirements for listed companies and as the Review Group‚€ôs recommendations in this area are implemented.

O‚€ôConnor: We have spent a lot of time working with clients, the Government and the professional accountancy bodies on these developments and this work is continuing. The main practical impact will follow. In the meantime, the publicity surrounding the Audit Review Group has led to more general awareness of these issues and helped the spread of good corporate governance.

Ryan: To date we have not really felt the impact of the recommendations of the Review Group on Auditing but undoubtedly will do so as soon as these findings are made into law. One area of which there has been some progress is the development of an Irish Practice Note on Auditing of Banks where significant progress has been made in the last few months by a working party on which the Central Bank is active and which has provided some essential guidance in this area.

As a business service provide, how do you now see the Irish economy? How robust or vulnerable is it now?

Kenny: A lot of people are talking down the Irish economy at the moment, but I remain upbeat. What we are experiencing is part of a normal business cycle. Irish businesses have become global - so when the US catches a cold we sniffle in Ireland. I don‚€ôt expect the very high levels of GDP growth that we have experienced over the past two years to continue indefinitely, but I do expect growth to continue at a reasonable level and be sustained.

Kennedy: Ireland has had a number of years of very strong growth and most predictions for the next 2 - 3 years suggests annual growth between 5 - 6 per cent p.a. These are very good growth rates in themselves and are significantly better than the predictions for the US and European economies for the same period. A relative slow down in our economy will provide for an easing of inflationary pressures which is necessary and an opportunity for much needed improvement in our infrastructure.

O‚€ôConnor: Ireland‚€ôs projected GDP growth for the current year is estimated to be circa 5-6 per cent as noted in our recent PwC European Economic Outlook, which while down from the 10 per cent GDP growth of last year, still remains the fastest growing economy in Europe.

However, Ireland is a small open economy, with significant exposure to the vagaries of the global economy, in particular our main trading partners being the US and UK. External shocks which had an adverse impact on our economy over the past twelve months included the downturn/re-adjustment in the technology sector; the fall out of the Foot and Mouth Outbreak and the poor performance of the Euro vis a vis the US Dollar and Sterling. In addition, emerging internal strains which are capable of adversely impacting on our competitive positioning include the tight labour market in specific sectors such as technology, construction and services together with the inconvenience and cost factors associated with continued traffic congestion.

Notwithstanding the above factors, the fundamentals of the Irish economy are strong. Ireland is still an attractive and conducive environment in which to do business. Earlier this year we would have anticipated a slow down in the demand for professional services - to date there has been no evidence of this.

Ryan: We are still confident on future prospects. It is easy to become gloomy based on recent job loss announcements, but these need to be placed in perspective. Economists remain optimistic, the latest growth projection for this year is 6 per cent+-we would have killed for that in the eighties!

But some caution may be necessary, because a huge contributor to economic growth is confidence. I would be worried if there was to be a severe loss in that. Government needs to be responsive to that. Foreign investors especially will be watching us closely over the next few months, because they have been disturbed by such matters as the anti-Nice vote and the considerable increase in employer‚€ôs PRSI cost imposed by the last Budget.

What are the greatest challenges you face in managing a now faster-growing group of professionals?

Kenny: Finding and keeping the best people is our number one concern. Deloitte & Touche has established a reputation for being the employer of choice - we have been consistently named in the Fortune ‚€ėBest Companies to Work For‚€ô for the past four years. Graduates are also placing Deloitte & Touche as their number one choice. The greatest challenge for us will be to keep up the momentum of growth by finding and keeping the best. You only achieve this by making people feel inclusive, respecting them and informing them.

O‚€ôConnor: Our greatest challenge continues to be retaining our highly valued and skilled staff.

Ryan: Attracting and retaining top-quality professionals is the key challenge in a business whose core asset is the quality of its people.

How important is it for you practice to feel, and be, distinct from others? What distinguishes your practice?

Kenny: Its not being different that is important, but being the best. We believe we are the best from two standpoints: Firstly, we have a reputation for being an employer of choice - for being one of the best places in the world to work. This business is about people and intellectual capital, so whoever wins the people battle delivers the best service.

Secondly, we have the ability to bring multidisciplinary solutions to solving complex problems. While many of our competitors have sold off or are trying to sell off their consulting arms we remain committed to providing a full service to our clients.

O‚€ôConnor: Extremely important. Our uniqueness and point of differentiation is our people.
The investment we make in our people continues to set us apart, and is a key distinguishing factor which helps us attract and retain the best and the brightest.

We are continuing to develop and implement a range of programs focussed on our people as professionals, but also as individuals. As market leaders, our technical training and professional skills training is second to none. However, we also give our people the opportunity to develop their personal skills, and to focus on issues such as work life balance, health and lifestyle.

Our intention is to continue to be the premier provider of professional services in the market, and we can only do this if the best professional people in the market continue to choose PwC as their employer. We will continue to differentiate ourselves in the market place on this basis.

What so you think is the future of the ‚€ėBig Five‚€ô in Ireland?

Kenny: We have stopped thinking of Deloitte & Touche as one of the Big Five. The Big Five concept is past its sell-by date. What we are seeing in the marketplace is the development of two or three, large, multidisciplinary practices and up to 20 global players who are trying to specialise in particular areas - such as eBusiness or funding. We are committed to being a multidisciplinary practice that leads the market.

Kennedy: The outlook for the next 6 - 12 months is uncertain because of the slow down in the US economy and the impact that will have on the rest of the world including Ireland. I am optimistic about the outlook for KPMG in Ireland because of the quality and diversity of our client base and the range of services that we provide.

O‚€ôConnor: Very strong. Due to the increasingly complex business environment we operate in we see demand for professional services provided by the ‚€ėBig Five‚€ô to be very strong.

Ryan: We have a strongly growing business, we have diversified in recent years into such areas as business consulting, corporate finance and human capital consulting. These areas are developing rapidly for us - we no longer think that the business services implied by the term ‚€ėBig 5‚€ô properly describe what we are about, the services we provide, or the skills and accomplishments of our people.

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