Mr. Pat Houlihan:

Ms Hall has said that when there is a crisis, one looks back to see what happened and forward to prevent a recurrence. We are at that juncture in the present case. The proposals before us raise the bar significantly in terms of the requirements of the auditor. If, as we hope will never happen, there are problems, we will review and look forward. In any review we will ask whether the auditors complied with the new level of expectations provided for in the proposed legislation. If an auditor complied, there will be no need for action. If an auditor did not, we will ascertain how he or she failed and ask if such a failure contributed to the difficulty.

A member of the joint committee asked at a previous meeting if sanctions were proposed. Sanctions are proposed in Article 62 of the directive which sets out swingeing penalties for breaches of the regulation. A fine of €5 million is provided for, as is flexibility, whereby a member state can increase it. There is a significant disincentive for those on whom responsibility is thrust to fail to meet their obligations. That may provide Deputy Anthony Lawlor with some solace.

The question has been asked what legislation will be introduced on foot of the measures constituted, on the one hand, as a directive and, on the other, as a regulation. If it is done in the usual way, the directive will be transposed by way of regulations, that is, secondary legislation, under the 1972 Act. I suspect it will be. It may be that the provisions will be implemented by way of amendment or insertions in SI 220 of 2010. The regulation will have direct effect from the day of its implementation, which will be two years from the date on which it is adopted. Where domestic legislation is in conflict with the regulation, we will have to amend it, but where there are lacunae, the regulation will have direct effect and it may be that we will not have to enact our own provisions.

It was suggested it would be desirable to increase the audit exemption thresholds, which are at the maximum permissible under EU legislation of €8.8 million in respect of turnover and €4.4 million in respect of the balance sheet. The good news is that a further increase in the thresholds is proposed in the audit directive up to €10 million and €5 million, respectively. This is being negotiated and likely to be concluded under the Irish Presidency.

Questions were raised about the response of the big four to the Green Paper and their influence on the legislation. The big four are entitled to respond in a consultation process which is open to everybody. There were a record number of 520 responses to the Commission's Green Paper. It was an astronomical figure. Even if the big four had their aunts and uncles responding on their behalf, it would have been difficult for them to reach a majority. Nevertheless, it would be an understatement to use the word "consternation" to describe the reaction of the big four and the audit community to the Commission's proposals. There is no evidence of undue influence on the Commissioner and they are not at all happy. If they sought to influence the outcome by way of responses in the consultation process, the end product demonstrates that they did not succeed.

Joint audits would be a wonderful device if they could be guaranteed to be joint audits of two of the big four companies. In that scenario, one would have the perfect hand-over mechanism whereby one company would come on board at a particular time and subsequently hand the baton to a second. It would be an orderly approach in a situation which was deemed to require a big four audit. There is no indication I have come across of enthusiasm on the part of the big four to participate in such an arrangement. A Danish colleague talked at a meeting I attended in Brussels about the experience of joint audits in Denmark and I will never forget his summary which was that with joint audit one got one audit for the price of two. Joint audit might also be an impediment to auditor rotation and muddy the waters with too many parties coming on board. A further difficulty is that joint audits are often not really that; there will often be a dominant partner, which would perforce be the case where a big four company was one of auditors. A certain element of an audit would be farmed out to the junior partner, but a senior partner might still not be happy at having to underwrite that element. While joint audits sound attractive, they lose some of their lustre following an in-depth examination. At a minimum, there are complications.

Legitimate concerns were expressed about the risk of the ICAI having undue influence over the IAASA, but that is not the case. A colleague went to a meeting with the IAASA when he was new to the relevant part of the Department and wondered if there was a risk of regulatory capture. The room literally exploded in laughter. There is no such risk or possibility. It will never happen. They contribute to the funding process in the IAASA and the IAASA's powers are set out in law. It is obliged to wield them without fear or influence, which is exactly what it does. All players in the game accept this. The ICAI would be the largest contributor and I have never heard it complain about providing money for the IAASA which, in turn, makes it do things it does not want to. It is a settled system and not one I would want to vary. It works very well. There is a certain degree of minority representation on the board, but those two or three members cannot influence the actions of the IAASA. I was on the board for a number of years and found those members to be very helpful and have contributed greatly to the process of understanding issues. I have seen no difficulties in the past and see no prospect of difficulties arising now.

As Mr. O'Toole said more articulately than I can, we are in exceptionally financially inclement circumstances. It is very difficult to get resources or money from anybody and the prospect of switching from a situation where 60% of IAASA funding comes from the bodies to one where the State pays 100% is exceptionally remote to say the least.