Mr. Brendan Walsh:

I thank the committee for the opportunity to make this presentation. I am honoured to be considered for the position of chairman of IAASA. I have learned a great deal about the authority since 1.30 p.m. Needless to say, as an outsider to the authority and accounting profession, I am not that familiar with the work of the authority.

I understand the authority has an important role to play in rebuilding the public's confidence in the processes of financial reporting and statutory auditing and is doing so in the context of major changes in the European regulatory framework and supervisory structures following the establishment of the European Securities and Markets Authority and publication by the EU Commission of a Green Paper on reforms of the audit market, which were discussed at some length earlier by the committee.

As discussed, the authority is also facing a major expansion of its functions as it assumes responsibility for quality assurance of certain firms. These demands are on top of the authority's existing role of supervising the financial reporting of equity issuers and the regulatory and disciplinary activities of the prescribed accounting bodies. As mentioned during the earlier part of this meeting, this increase in the authority's workload comes at a time when resources available to public bodies are shrinking. Securing adequate resources commensurate with the increased responsibilities will be crucial to the authority's success in performing its expanding role. The statement of the outgoing chairman and review of the outgoing chief executive underline the commitment and professionalism of the authority's staff and provide me with great reassurance that IAASA will be able to meet the challenges its faces in effectively supervising the Irish financial reporting system. I believe it will receive the support of the Oireachtas in discharging this duty.

As I said, I come to the role of chairman as an outsider to the accounting and audit profession but as one who has had a lengthy involvement with this profession as a customer, particularly in the context of pensions funds and fund management industries where the role of auditing is crucial.

It is equally important in the very turbulent financial period since 2008. The expectations gap that was mentioned in the previous debate became very apparent to me as a member of a number of boards dealing with very large sums of money that suddenly became smaller in the course of 2008 and 2009 with grave implications for investors, members of pension funds and people looking forward to a retirement with some financial security. The debate that took place here was enlightening to me in regard to the expectations gap not just between the general public and the profession but also in regard to directors of companies, who rely on auditors to give them comfort and assurance that the accounts have been kept honestly in accordance with the law. Directors of companies can take reassurance from this. The expectations gap, as mentioned by Deputy Tóibín among others, is that we as directors cannot rely on this to discharge ourselves of responsibility for prudence and for the decisions that ultimately determine the performance of pension and investment funds.

I have an appreciation of the key role played by the auditing profession in maintaining confidence in the stability of the financial system, but I also have an awareness of the limitations that are placed on that by the way in which the systems in the accounting and the auditing profession operate. I am conscious of the need to strive for maximum transparency in areas that are often highly technical and obscure to the general public. It is also vital to maintain public confidence in the integrity and independence of the regulatory and disciplinary process. We had an extensive discussion in this regard earlier this afternoon and I have certainly obtained great clarification of the role of the authority with regard to indirect supervision but also with regard to direct supervision, as was clarified by some of the contributions.

The present system of self-regulation in the accounting and auditing profession gives increased significance to the supervisory role of IAASA. I am coming to this as an economist. Some people say that accountants are economists who could not stand the excitement and retired to the accounting profession. I am doing it the other way around. I thought of this in the context of the professional insights an economist should bring to the role of the supervisory authority. I am happy to say that most of the ideas I would suggest were mentioned in the previous discussion.

One of the areas in which economists have been sceptical about regulation and regulatory authorities is with regard to the concept, mentioned by Mr. Pat Houlihan, of regulatory capture - the idea that a regulator provides an opportunity for the people being regulated to enforce structures and rules that they themselves favour rather than acting as a genuinely independent supervisor of the profession. Regulatory capture has been a big concept in economics and a Nobel prize was awarded to the person who threw this idea out in the United States. It has given rise to a certain scepticism about supervisory and regulatory authorities. I have taken consolation from the earlier remarks that the way in which IAASA works has avoided any taint of regulatory capture. It is my ambition that this should continue to be the case during the years I am associated with it.

What an economist can bring to any role such as this is the opportunity to consider the incentives that people in the profession face. Economists believe that people are ultimately driven by the incentives and the rewards they can reap from certain types of behaviour. It is important in the medical profession that the providers of medical care are driven by concern for their patients rather than by a concern for increasing the size of the profession or increasing their own incomes. In the same way, in this area, it is important that the incentives faced by auditors and accountants in regard to the firms in which they have an audit role are not tainted by any other incentives in regard to the firms with which they are dealing. The existence of a secondary motivation for going along with practices in a firm because of another relationship the auditor has with the firm is perilous and must be avoided at all costs. The incentives facing the profession have to be such as to minimise any conflict of interest that could arise, such as a conflict between the interests of the auditing bodies and the interests of the public and the shareholders of the companies.

A final concern that economists have in this regard - which needs to be mentioned, not just in the Irish context but also in the European context - is the question of cost. Excessive regulation, intervention and burdens of compliance on firms, including audit requirements, do ultimately make firms less competitive with jurisdictions in which these regulations and requirements are less onerous. This is an issue faced by Europe as a whole and to some extent by the United States in the wake of the crisis we have come through. We must be conscious that at the end of the day, firms are in business in order to meet consumers' wants. They must do this in a transparent and honest manner. They must comply with accounting regulations and with the law in this area but they also should not be burdened with excessive costs. I think there is a balancing act to be performed between the goals we have been emphasising - transparency, credit and trust and confidence in the auditing function - on the one hand and the danger, on the other hand, that firms will become choked by regulations that are onerous and costly.