Mr. Gerry Fitzpatrick:

Thank you, Pat. Good afternoon and thank you for the opportunity of addressing the committee. My name is Gerry Fitzpatrick and I'm one of the Deloitte partners engaged with auditing the banking sector. I've worked with Deloitte for over 30 years and have been an audit partner for 15 years, and I was, as stated, a partner on the auditing of Ulster Bank Ireland Limited, or UBIL, from 2004 to 2008. I've provided a detailed written statement addressing our role as auditors of UBIL and I would propose to take that statement as read. I will now make some introductory remarks.

As independent auditors to UBIL, our role was to report to the shareholder in accordance with the requirements of the Companies Acts. Our work was carried out in accordance with international standards on auditing. The UBIL financial statements were prepared by the directors in accordance with international financial reporting standards and under the requirements of companies legislation. A true and fair view is normally achieved when the financial statements are prepared in accordance with IFRS standards. Auditors do not set the accounting framework but rather, we provide an opinion on whether the financial statements prepared by the directors give a true and fair view. An audit is a point-in-time examination of the reporting of financial performance and position, measured in accordance with standards and an audit is primarily an examination of historical data prepared by the directors and presented in their annual report. Shareholders and capital markets value the audit process, as the audit underpins the trust and obligation of stewardship between those who manage a company and those who own it, and with a range of other users. To demonstrate the stewardship, the financial statements are prepared under IFRS to provide extensive analysis, both of accounting policies adopted by the directors and in preparing the financial statements' extensive financial data. Separate to the financial statements, the bank submits various capital and liquidity returns to the regulator. Those returns are prepared under separate rules or sent directly to the regulator, and are not subject to audit.

Our audit process is focused on the financial statements. The process commences mid-year, when a plan is presented to an audit committee. The plan sets out our work on key audit areas, on key issues, on major judgments, together with a summary of our proposed approach. That approach is a risk-based one, which includes tests of controls, reviewing the work of internal audit, evaluating control and remediation within the organisation, IT audit testing and tests of financial data. And that testing work commences in quarter four of the year, looking then at the transactions to the end of September. And following the conclusion of the year, we finalise our testing work and examine the financial statements prepared. The audit process is detailed and uses sample testing of the tens of millions of transactions and balances that the bank has recorded on its financial systems. Sample items are agreed to supporting records and to external confirmations. In the case of areas of judgment, we examine the evidence provided by management and challenge the nature and source of that data. We seek evidence of contradictory data available either internally or externally. Our work on UBIL was linked closely to the work of Deloitte RBS Group audit team and we reported the results of our work to them also. And throughout our audit, we met regularly with management and the audit committee of the board. When the directors have approved the financial statements and our audit is complete, we issue our report on those financial statements and the report for 2008 year issued ... was issued in February 2009. It was an unmodified, true and fair view opinion. And in reaching our opinion, we consider the results of our audit work, we assess the accounting policies and, where appropriate ... and consider where they were appropriate. We consider the nature and risks of and uncertainties in how they were disclosed and then adequate disclosure to be made on key items, such as loan impairment and going concern.

In addition to our statutory audit opinion, which is included in the annual report, we provided a detailed audit summary report to the audit committee of Ulster Bank Group, which included a summary of our work on UBIL. A copy of that report and similar reports for other years were submitted to the joint committee in February. In our own summary report, we provided the audit committee with details of our audit work, we showed analysis of risks in customer lending and data on corporation coverage by lending category. We reported on the impairment process tested by us. For 2008, as example, we refer to the absence of up-to-date collateral evaluations and the need for enhanced documentation of the impairment process. We also reported that the going concern assessment relied on RBS Group, the group's management of capital and funding, and in addition to being presented to the audit committee, our summary reports are made available to the regulator.

Our summary is presented to the audit committee as they approve the financial statements and those financial statements, as I've mentioned earlier, provide extensive analysis both of the accounting policies and the financial data. In taking the 2000 financial statements, by way of example, across 80 pages, these included accounting policies and disclosures on a wide range of topics.

I would like to highlight some key aspects of those disclosures relating to loan quality and finding. With regard to loan quality, the directors described in their financial statements six important elements. Firstly, the accounting policy was set out detailing the incurred loss approach which is required by the accounting standard IAS 39. Next, the directors highlighted key judgments and uncertainties which they explained could cause the actual losses to differ materially from those reported from their reported impairment provision. A third item was the detailed analysis of the quality of all loans, and this was done by reference to the bank's internal credit grading system. That data showed details of deterioration in the quality of the bank's loans in the year, showing that the gross value of loans in the lower quality categories had increased from €6.3 billion at the end of 2007 to €14 billion during 2008. Other aspects, including overdue payments, were also shown. A fifth item was the analysis of lending exposure by industry and sector, which provided insight into the lending strategy, showing, for example, that of the total exposures that property and related exposures included, construction, 6%; home mortgages, 19%; and property, 22%. And lastly the impairment for the year ... charged for the year was disclosed.

With regard to the funding model of the bank, the financial statements disclosed, amongst other things, three important aspects. Firstly, that 46% of the funding was provided by RBS Group entities. Next, that 75% of the financial liabilities fell due within three months of the balance sheet date. And lastly, the directors explained that, in their judgment, it was appropriate to prepare the financial statements of the bank on a going concern basis, and that the bank had adequate resources to continue its business for the foreseeable future. The directors disclosed that they had concluded this assessment having considered the financial position of the bank, and referenced the ongoing support of RBS Group by way of capital funding and liquidity facilities. Similar disclosures on loan impairment and going concern were provided with financial statements for other years.

The analysis presented by the directors within the financial statements shows the transparency of disclosure made available to both the shareholder and to the regulator. Our role was to ensure the measurement and disclosure was in accordance with a true and fair view. Our role, as Mr. Cullen has pointed out, is fundamentally different to the role of the Financial Regulator, who is primarily concerned with maintaining the stability of the banking system. And whilst audited financial statements contribute to the regulatory process, the determination of capital, the undertaking of tests for future stress, and the setting of regulatory buffers are functions undertaken by the regulator. That process is not under statute part of the scope of the audit, of the external audit. In providing our opinions on the financial statements, I believe we discharged our responsibility professionally and with due care and diligence.

Finally, I would echo Mr. Cullen's comments and recognise the financial crisis has had a normal impact ... enormous impact on a wide range of stakeholders and our profession has recognised the need to learn from the crisis and has reflected on how financial reporting and auditing could be enhanced. We have engaged in a variety of reviews across the world and at Deloitte in Ireland, we support the enhancements explored in those reviews and I would highlight just five things: firstly, the development of a new expected loss accounting standard, IFRS 9, which subject to EU approval, is due to be implemented in 2018. The development of with the regulator of an expanded auditor assurance protocol and this involves auditors reporting separately on aspects of governance processes at financial institutions and this expanded process has commenced from 2014. Thirdly, recommended changes in auditor reporting to audit committees and shareholders are now in place. Next, availability of new audit tools was proposed and that is now in place. And, lastly, enhanced dialogue around the audit process with regulators and this has been a feature for the audited banks in Ireland since 2009.

Whilst these are not changes to the scope of the core audit, such initiatives can, through enhanced communication of the existing scope and the setting of a wider scope, help to create a broad level of awareness of banking models and their underlying economics and, in some way, mitigate some of the understandability and relevance issues of historic financial information. Nonetheless, the preparation and audit of financial statements will continue to require significant judgment. Finally, the financial statements contain valuable data, but, as a point in time measure, can only attempt to present measures based on that point in time judgment. And the scope of an audit is an assessment of whether those financial statements present a through and fair view and, in that regard, has significant value. Thank you, Chairman.