Mr. Pat Cullen:

Good afternoon, Chairman, Deputies and Senators. Firstly, I'd like to thank the members of the committee for your invitation today. My name is Pat Cullen, I'm a partner in Deloitte, specialising in taxation, with over 30 years' experience and, for a four-year term from mid-2007 to mid-2011, I served as managing partner of Deloitte. As managing partner, I was responsible to the partners and the firm's executive committee for the management and operation of all aspects of the firm's affairs. In my role as managing partner, I oversaw the management of the firm, including the provision of professional services to our clients, the skills and resources of our people and the financial management of the practice.

In my written statement - provided to the committee of inquiry some weeks ago - I provided the inquiry with a summary of salient aspects of our legal framework and governance structures, together with key features of our audit quality processes, which are of such fundamental importance to all of the work we carry out as auditors to a wide range of clients. In the interests of brevity, I'm not going to read my written statement. Instead, I'm going to refer to some areas that I consider may be of particular interest. Audit quality is a key area of public and stakeholder interest and delivering the highest standards of services and advice to our clients is our continuing and overarching objective. An important part of my responsibility as managing partner was to ensure that we had the appropriate processes in place to carry out our responsibilities in this regard. At an overall level, this helps to ensure that our professional services and our business conduct were in the public interest. Our audit approach is centred on providing clients with the most skilled audit partner and team appropriate to the needs and complexity of their case. Our quality governance processes require engagement partners to be fully responsible for the services they provide and for understanding our clients' business. Their involvement in the audit process is required from the very outset of any engagement, with partner-led audit planning key to our audit approach.

Our audit practice is structured into specialist industry groups, led by partners with a great depth of experience and expertise in that industry. Our financial services group, which includes banking, is one such group. These groups collaborate in order to share their understanding of market developments, risk assessments and emerging trends and this is of particular value during times of market turbulence and change. Audit partners are also supported by our professional practice directors and by the audit risk and reputation leader. The professional practice directors are responsible for technical, accounting and auditing support and their approach is responsive and consultative. Deloitte member firms are also part of a network of similar industry groups from around the world. These groups include experts with day-to-day, first-hand experience of the application of accounting standards across different legal and regulatory environments and include designated experts who are available to advise audit partners on engagements in dealing with complex or contentious accounting or auditing issues. The availability of these resources ensure that there is specialist support available if required to deal with difficult issues as they arise and to support our audit teams.

A review of our audit practice is carried out annually and this is overseen by Deloitte globally. The practice review determines whether we have complied, in all material respects, with Deloitte policies and procedures, applicable professional standards and applicable legal and regulatory requirements. Our audit practice is also subject to external review by the Chartered Accountants Regulatory Board, the independent regulatory board of Chartered Accountants Ireland. The results of our practice reviews are considered by our executive management committee and action is taken, as and where appropriate, to implement measures to address the recommendations made. It is a key element in our continuous drive to improve and enhance audit quality.

As I explained in my written statement, all partners who act as audit engagement partners for statutory audits have been granted responsible individual status by the Chartered Accountants Regulatory Board and are registered statutory auditors. Personally, I am not, and I never have been, a registered statutory auditor. My professional expertise lies primarily in the area of taxation. Therefore, I'm joined here today by Mr. Gerry Fitzpatrick, who is a registered auditor and a specialist in the banking sector. Mr. Fitzpatrick kindly advised me on the responses in my written statement to the lines of an inquiry in your direction of 2 April. Today, Mr. Fitzpatrick will address some of the issues in your lines of an inquiry in the context of his role as lead audit partner on the audit of Ulster Bank Ireland Limited, UBIL, from 2004 to 2008. Before I hand you over to Mr. Fitzpatrick, I would like firstly to make it clear what I understand to be the purpose of financial statements and our role and responsibilities as auditors.

International financial reporting standards, or IFRS, which is a framework used by the directors of UBIL to prepare the bank's financial statements, describe the purpose of financial statements as being, "A structured representation of the financial position and financial performance of an entity", the objective being to provide information about the financial position, financial performance and cash flows that's useful to a wide range of users in making decisions and presenting the results of management's stewardship of the entity's resources. The whole essence of IFRS is to provide for recognition, measurement, presentation and disclosure of specific aspects of financial reporting in a way that leads to a true and fair view being shown of the financial position and profit or loss of the entity. IFRS states that, in virtually all circumstances, an entity achieves a true and fair view by compliance with IFRS. Objective, professional judgment must be applied by the directors to ensure that financial statements give a true and fair view. Under the Irish Companies Acts, every company of the size of UBIL must appoint a statutory auditor and that auditor must make a report to the members on the financial statements examined by them, with the primary purpose being to state whether, in their opinion, the company's balance sheet and profit and loss account have been properly prepared in accordance with the provisions of the Companies Acts and give a true and fair view of the state of the company's affairs as at the end of its financial year and of the company's profit or loss for the financial year.

Over the years there has been much done to provide direction and guidance to auditors in carrying out the audits of specialised entities. This includes practice note 19, the audit of banks in the Republic of Ireland. While its main purpose is to provide guidance on the application of auditing standards to the audit of banks, it also comments on the objectives of the Financial Regulator and the objectives of the auditor, emphasising that while they may have complementary concerns, there are fundamental differences in their objectives. The Financial Regulator is primarily concerned with maintaining the stability of the banking system and fostering the safety and soundness of individual banks in order to protect the interests of depositors. The auditor's primary responsibility is to report his opinion as to whether the financial statements of the bank being audited present a true and fair view.

It's clear that the banking crisis has had an enormous impact on a wide range of stakeholders. It is absolutely regrettable that a number of major factors came together back in 2007-2008, including international market conditions, major banking failures like Lehman and a slowdown in the Irish property market, which conspired to create conditions of an economically catastrophic nature, which few, if any, could consider would lie within the range of expectations that one could normally predict.

Consequently accounting standards were faced with challenges which they found exceedingly difficult to keep pace with, as, for example, the concept underlying the incurred loss impairment model. The occurrence of loss events was happening at a pace and on such a systemic basis that the quantum of impairment provisions could change from day to day, let alone from month to month. And that was the difficult background against which audits were carried out in 2009. Hindsight does have the benefit of 20:20 vision and in the cold light of day, some seven or eight years later, yes, there is scope for asking questions about, "What if?" There is a broad need to learn from the crisis, and we support inclusion of the role of auditing in any reviews being carried out. Across the globe and in Ireland, the auditing profession has reflected on their role and considered how financial reporting and auditing could be enhanced. Deloitte has engaged and been a leader in such developments, some of which Mr. Fitzpatrick will comment on.

I'm now going to hand you over to Mr. Fitzpatrick.