Professor Patrick Honohan:

I think their work was not central, in a sense.

There were not very many interactions - or we certainly did not explore any interactions - between the regulatory authorities and the auditors. The auditors helped the management of the banks to produce the accounts on which, to a large extent, the regulator was relying for statements - repeated statements - that the banks were well capitalised. What did they mean by well capitalised? Well, they looked at the audited accounts and the percentages of capital were very high compared to the requirements and so they said they were well capitalised. What did that mean? Had the auditors really dug into the asset quality review type of work and had they made enough provision for expected losses? There was a great debate around that time - from 2005 - as to whether the provisions against future losses could include an estimate of future expected losses in respect of items which had not been identified as troublesome. That was very controversial and all in all, the information coming from the audits probably deteriorated as a result of those changed international practices. The auditors will probably say when they appear before the committee that it is not their business to look at down side risks and possible problems around the corner of low probability. They will say that their business is "fair and complete"-----