Minister for Trade and Commerce Michael Ahern Publish Companies (Auditing and Accounting) Bill, 2003

New Regulatory Regime for Auditors and Accountants

Minister for Trade and Commerce, Mr. Michael Ahern TD today (Friday 14th February, 2003) announced the publication of the Companies (Auditing and Accounting) Bill, 2003.

The Bill arises directly from the Report of the Review Group on Auditing, and the recommendations contained in that Report form the substance of the Bill. The Review Group on Auditing was established by the Tánaiste to examine the regulation and the professional rules governing the auditing profession. The Review Group was chaired by Senator Joe O'Toole and reported in July 2000.

The new Bill provides for the establishment on a statutory basis of an independent regulatory body, the Irish Auditing and Accounting Supervisory Authority (IAASA). IAASA has already been set up on an interim basis and has been operating in that capacity since April 2001. Minister Ahern paid tribute to the work of the Interim Authority since its establishment. The principal function of IAASA under the new legislation will be to supervise how the prescribed accountancy bodies regulate and monitor their members.

Minister Ahern emphasised that IAASA will be independent of the profession while at the same time having at its disposal all the necessary expertise required for effective regulation. The number of accountants on the Board of IAASA will be strictly limited to no more than two out of a thirteen-person Board. The new body will be funded 40/60 by the Exchequer and the profession respectively.

In addition to discharging certain functions relating to the granting of recognition to bodies of accountants under section 187 of the 1990 Act, which up to now have been the responsibility of the Minister for Enterprise, Trade and Employment, IAASA will have the power, among other things to:

Intervene in the disciplinary process of the accountancy bodies where it deems it necessary;

Carry out independent investigations in public interest cases;

Apply to the courts to compel the directors of a company to amend accounts that are not in line with accounting standards.

Announcing the publication of the Bill Minister Ahern said, "One of the key functions of the Supervisory Authority will be to actively supervise the regulation by accountancy bodies of their members. Adherence by the auditing and accountancy profession to the highest standards and ethics, including independence from client companies for whom audits are carried out, is necessary if the proper functioning of the profession is to be ensured. Accounts of Irish companies totalling billions of Euro are audited annually by the auditing profession and there is a need to ensure that Ireland's reputation as a safe, reputable and desirable location in which to conduct business is protected".

Minister Ahern continued "this visionary and pioneering legislation will place Ireland at the forefront of prudential initiatives in the commercial arena".

Minister Ahern pointed out that these reforms were in the pipeline in advance of the recent events in the US and the publication of the Ansbacher Report. Similar reviews such as the one that was undertaken here by Review Group on Auditing are now taking place in other jurisdictions such as the US and the UK. The EU is also examining the operation of the accounting and auditing profession following the collapse of Enron and are looking at introducing reforms similar to those being introduced here in relation to independent oversight of the accounting profession and enhancing the role of audit committees.

Minister Ahern concluded, "We must not become complacent. We must continue to ensure that Ireland's regulatory system remains a leader in international best practice, so that there is confidence at both national and international level in the regulation of this important profession".

Note for Editors

Review Group on Auditing

The Review Group on Auditing was established by the Tánaiste and Minister for Enterprise, Trade and Employment, Ms Mary Harney, TD, following from the PAC Parliamentary Inquiry into D.I.R.T. The Review Group was asked to examine current arrangements for the regulation of the accountancy profession, auditor independence, the auditing of financial institutions and the role of auditors in ensuring compliance with statutory provisions. The Group, which was chaired by Senator Joe O'Toole, met between February and June 2000 and its final Report was presented to the PAC on 11 July, 2000 and was further discussed at the PAC on 28 November. Following a public consultation on the Report and its recommendations the Government endorsed the Report, approved the establishment of the Irish Auditing and Accounting Supervisory Authority (IAASA) on an Interim basis and the implementation of the recommendations in the Report. The implementation of these recommendations required amendments to company law and changes to the constitutions and professional standards of the accountancy bodies.

Interim Board of IAASA

The Tánaiste established the Interim Board of IAASA in April, 2001 to advise the Department of Enterprise, Trade and Employment during the drafting of the necessary legislation to establish the IAASA on a statutory basis and to give effect to the other Recommendations contained in the Report of the Review Group on Auditing and also to draw up a business plan to cover the first three years of its operation on a statutory basis.

The interim Board of IAASA consists of an independent chairperson, Mrs Karen Erwin, Consultant, nominated by the Tánaiste and twelve members nominated by the accountancy profession, the Irish Business and Employers confederation (IBEC); the Irish Congress of Trade Unions (ICTU); the Irish Association of Investment Managers (IAIM); the Irish Stock Exchange (SEC); the Pensions Board; the Central Bank of Ireland; the Revenue Commissioners and the Director of Corporate Enforcement. The same bodies will nominate members to IAASA when it is established on a statutory basis.

Once established on a statutory basis IAASA will be funded on a 60%/40% basis by the accountancy profession and the State.

Companies (Auditing and Accounting) Bill 2003

The Companies (Auditing and Accounting) Bill gives effect to the recommendations contained in the Report of the Review Group on Auditing. One of the principal recommendations in the Report is the establishment of the Irish Auditing and Accounting Supervisory Authority (IAASA). The principal duties of IAASA as provided for in the Bill are

Supervision of how accountancy bodies regulate and monitor their members

Promotion of adherence to high professional standards in the auditing and accounting profession and

Monitoring whether particular categories of companies/undertakings comply with the Companies Acts.

Under the new legislation the accountancy bodies will have to submit their byelaws including their ethical rules and their disciplinary and investigation procedures to IAASA for approval. This will lead to a significant strengthening of such rules and procedures including rules governing auditor independence. One of the key provisions in the Bill in relation to auditor independence is that a company (as defined) discloses separately the remuneration paid to its audit firm in respect of audit services, audit related services and non-audit services. In cases where the disclosure requirement applies and where remuneration in a financial year for non-audit work is greater than that for audit and audit-related work added together, the directors (or the audit committee, if one is in place) are required to state in their report that they have satisfied themselves that the carrying out of this (non-audit) work has not interfered with auditor's independence in respect of the relevant undertaking.

Directors will be required to draw up a `compliance statement' which will cover that companies' policies and procedures concerning its compliance with its statutory obligations including the company's obligations under company and tax law which will be reviewed by auditors. This will make directors much more aware of their obligations under law.

The Bill also contains provisions whereby directors of certain specified companies will be required to establish audit committees comprising in the main, a majority of independent non-executive Directors, have written terms of reference and report on its activities in the annual reports.

In essence, IAASA will monitor and oversee the activities and standards of accountancy supervisory bodies. Included in this is the transfer to IAASA of functions carried out up to now by the Minister for Enterprise, Trade and Employment, notably in relation to the recognition of representative bodies of accountants.

The Bill provides for the discharge by IAASA of the following duties

• grant recognition to bodies of accountants for the purposes of section 187 of the Act of 1990 and in this process to attach terms and conditions which are considered appropriate;
• approve and require amendment to where necessary, the constitution and bye-laws of each prescribed accountancy body, including its investigation and disciplinary procedures and its standards in the area of ethics;
• conduct enquiries into whether a prescribed accountancy body has complied with the investigation and disciplinary procedures approved for that body and impose sanctions on prescribed accountancy bodies in cases where non-compliance is established;
• investigate possible breaches by members of the standards of a prescribed accountancy body which can entail the examination of relevant persons under oath and the imposition by the Supervisory Authority of sanctions where breaches are found;
• supervise how each recognised accountancy body monitors its members by means of reviews of those members;
• co-operate with the recognised accountancy bodies and other interested parties in developing standards relating to the independence of auditors and monitor the effectiveness of those standards;
• monitor the effectiveness of provisions of the Companies Acts relating to the independence of auditors;
• supervise the investigation and disciplinary procedures of each prescribed accountancy body, including by requiring access to its records and by requiring explanations about how it is performing its regulatory and monitoring duties;
• review whether the accounts of particular categories of companies and undertakings comply with the Companies Acts and where necessary make applications to the High Court to ensure compliance;
• arrange for the regulation and supervision of individually authorised auditors by recognised accountancy bodies; and
• perform any other duties or discharge any other responsibilities imposed on it by the Act or the Companies Acts.

The Bill requires IAASA to produce annual accounts which must be laid before the Oireachtas, and the Chief Executive Officer (and Chairperson of the Board) may be required to attend before an appropriate Dail Committee in relation to the operation of IAASA.

ENDS