Mr. Joe O'Toole:

Tá an méid a dúirt an Teachta thar a bheith tábhachtach agus is breá liom é a chloisteáil. An rud atá ann ná nach féidir linn freagra a thabhairt faoi gach ceann de na ceisteanna sin. Looking back on the transcript of the last meeting, Deputy Collins dealt with the question of the expectation gap and the role of the auditor. The one thing we cannot do is change the role of the auditor. The quality assurance can change that but that will be politically driven and then we can implement it. However, there are things that can be done.

To answer the Deputy's question on the difference between direct and indirect regulation, this all began with the establishment of the DIRT inquiry in 2000. At the end of the DIRT inquiry what astonished the world was that directors did not appear to know what was going on in their companies. The recommendation in the report of the DIRT inquiry from the Committee of Public Accounts was that this should never be allowed happen again. At that time an audit review committee was set up to examine recommendations. I chaired that committee in 2000. On foot of that report the question of direct rather than indirect regulation arose. In terms of direct regulation, it means being established politically and professionally and the rules being set up in a country or perhaps in Europe and then implemented by the auditors on the ground. The auditors body, the accountancy body, checks if those rules are being implemented properly and we check that the accountancy body is doing it correctly.

As the Deputy will know from the role he had previously, an auditor is presented to us as being a watchdog rather than a bloodhound and it is in that respect there is an expectation gap - it is between whether auditors look under stones or take what they get. They work on the basis of the information given to them by the company directors.

I will cover one of the key recommendations from the audit review group and from the DIRT inquiry by taking the Deputy through ten years of this sad story. Directors would issue a compliance statement at the end of each year which, in simple terms, meant as far as we knew that they were complying with the laws of the land and with all their responsibilities, that they had put structures in place to do that and they presented that to their auditors. A provision covering that appeared in section 45 of the 2003 Act. When it appeared in the Act, great pressure was put on the then Minister, Mary Harney, to soften it. Pressure was also put on the Department and on all sides and it was softened, but it passed through in a way which IAASA said at least it operates. It is now ten years later and that section of the Act was never commenced. That is a political issue that I would like people to examine. Following that the Company Law Review Group was established. It took a similar line but the Director of Corporate Enforcement in a minority report asked that the compliance statement be commenced. A few years later in 2009 I introduced an amendment to the Companies Act.

I took exactly the proposal of the Director of Corporate Enforcement about directors saying that they are running a company and that one can have trust and confidence in it and that this is the reason. That has never been introduced. Pages 44, 47, 48 and 49 of the Honohan report deal with directors’ compliance statements that have never been implemented. It also shows that the Financial Regulator tried to get them implemented. That is one strand that has come through ten years where no matter what we do with auditors we still have to get company directors to take a particular line. That requires a political decision and regulation. The approach was supported by all parties at various times. I use it to point out how the expectation gap arises.

Most people assume limited liability was introduced to finance and economics 150 or 200 years ago in order that people would be civilised. The payback was that directors would act honestly and earnestly and prudentially. That was a requirement that has come through from the DIRT inquiry, the Office of the Director of Corporate Enforcement, from IAASA on three occasions, and the audit review group. However, although it is in the legislation it has never been commenced.

It is an example of how difficult it will be to do the things that Mr. Houlihan and Ms Erwin have outlined. They are issues that have not been grappled with. It would be great to think that the matter could be done and dusted by May during the Irish Presidency but I cannot see it happening because I am not sure that people will act politically.