Ms Karen Erwin:

I thank the committee for the invitation to appear before it to discuss the important topic of audit reform. Before commencing my presentation I would like to inform the committee that if the answers were easy and simple we would have had them long since. As members will be aware, many people have been grappling with the problems of audit reform. This means there are no probably no right or easy solutions. We are here today to tease out this issue with members and to help them understand the process. As I said, there are no right or easy solutions or guarantees that what is decided will work. There are almost as many different views on this as there are people working on it. As such, we can only do our best.

The Irish Auditing and Accounting Supervisory Authority, IAASA, has a short- and long-term solution to audit reform. During my presentation I will explain, albeit briefly, how IAASA operates and the current model to which it operates. I will then speak a little about quality assurance, which is what we can work to probably within a year. I will then move on to speak about the draft directive and regulation.

As requested, we focused our presentation on audit reform. We can get back to the committee about questions that arise today which we may not be able to answer. Members will be aware that there are a number of different sets of proceedings and reviews under way. As such, another difficulty that arises is that off-the-cuff remarks by us in response to a question could put some of those processes in jeopardy. We may have to refrain from answering some questions for this reason. However, we will come to the committee at a later stage with an answer to them.

IAASA had its origin in the DIRT inquiry. Subsequent to that, an auditing review group in 2000 recommended the establishment of an oversight body under a supervised self-regulation model. I will come back to that issue later. IAASA was established by statute in December 2005. In terms of size, our resources in 2013 are €2.69 million, of which €1.38 million is provided by the Exchequer and €1.31 million is provided by the profession. We have a total staff of 13, of whom five are in the regulation area. Members will see from the organogram where those five people sit. They will also note from the organogram that the head of regulatory and monitoring supervision is Ms Helen Hall. As of 8.30 a.m. today, Ms Hall is the chief executive of IAASA and will be moving upwards, leaving us to appoint a new person to her position.

Our current regulatory model is one of delegated regulation. Approximately 31,000 accountants are members of prescribed accountancy bodies, of which there are approximately nine. Some of those accountants are also auditors and are members of some of those nine prescribed accountancy bodies, which regulate those individuals. We do not have any direct regulation function over auditors or accountants. The prescribed accountancy bodies do the regulating. Each of those bodies has its own separate rules, regulations, disciplinary codes of ethics and so on.

Our role is to supervise those nine bodies. We do not have direct regulation of either accountants or auditors. I think it is important that members understand that is the way the Act prescribes how we behave. We do not have direct regulation.

On the next slide, we have listed the recognised accountancy bodies and I am honing in on audit. If one is an auditor, one must be a member of one of these recognised accountancy bodies. That body will govern you as an auditor. We will supervise those recognised accountancy bodies, known as RABs.

One of the important aspects of regulation is the inspection of auditors of public interest entities, PIEs. I think members will have heard Mr. Pat Houlihan explain to the committee on 16 October what a public interest entity is - it is a company or other body corporate whose securities are admitted to trading on a regulated market, a credit institution or an insurance undertaking. There were approximately 1,200 of those entities in October 2011. There are eight audit firms in Ireland responsible for audits of public interest entities, PIEs. When we are looking at risk, the big risk is what the public interest entity will do and so that risk is scoped down to eight auditing firms. All eight auditing firms are members of the same recognised accountancy body, the Institute of Chartered Accountants in Ireland, ICAI. ICAI has its own regulatory arm, which is known as CARB. One of the things I found when I took office as Chairperson was that one has to be an absolute expert at acronyms. I do apologise but that is just the way it falls out. The direct inspections of these eight audit firms who audit the public interest entities are carried out by the Institute of Chartered Accountants in Ireland. We do not have a role in direct inspection.

In May 2008, the European Commission recommended that there would be direct inspection, which is known as quality assurance of the PIE audit firms. That suited the Irish Auditing and Accounting Supervisory Authority, IAASO, because we believe the best way to regulate is by direct regulation. We were fortunate in that a decision was taken by the Department in July 2010 to implement that recommendation, that is, that we would directly regulate the auditors of the PIEs. As a result, and we can come back to this in detail later, we submitted a detailed implementation plan in 2011. We understand that its implementation is under active consideration by the Department. When I said that there is a short-term solution or difference in approach that could come up, if direct inspection, that is the quality assurance were to go ahead now, probably within a year, we could actually implement direct inspection of auditors of public interest entities, PIEs. That is something we can do in the short term. Even if there is still a debate on the European audit reform, we could implement direct inspection. Of course, it will come as no surprise that if we do that we will need resources. We can answer questions on it but we think we will need an additional 11 staff because we will be taking over the function from the Institute of Chartered Accountants in Ireland.

I hope members did not get a fright when they saw these endless lines of powerpoint slides. I do not intend to go through them in detail at this point, but we felt it might be helpful to members to have them front and centre for the later question and answer session. We have been working at European level with the European Commission on the Green Paper and with the Department on audit reforms. The scope of the proposals is contained on slide 12. The problems identified by the European Commission have been set out before.

We have 13 different strategies to address the problem of audit reform proposals. We are happy to talk through any of them with members.

In slide 16, we have taken the proposals and given a broad outline at to whether we support them or not. Let me give one example on the mandatory rotation of audit firms, IAASO. is supportive of that rotation after eight to ten years. We are not supportive of joint audits, but are supportive of regular tendering. Rather than reading out the information, I think we can come to it in the question and answer session.