David Cullinane (Sinn Fein)
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The best I can say is that I welcome the fact we are at least having a discussion and that the COMs are here before us. We need an awful lot more discussion and debate on this because we have to work through the detail of it. We all have to accept the whole system of auditing in Ireland is a mess and needs to be reformed. We must not repeat the mistakes of the past. There is no doubt failures in auditing played a big part in what happened in the banking sector and in some of the property companies as well. There is and has been for a long time an unhealthy relationship between auditing companies and their commercial masters, especially banks.

The mindset is that the auditors are there to keep the clients happy rather than doing what they should be doing, which is ensuring that sharp practices or accountancy tricks are not being carried out either by financial institutions or other companies. Unfortunately, the reality is that the necessary safeguards and checks and balances were not in place.

Accountability is one issue; we want to see improvements in accountability in this area, but liability is also crucially important. It seems to be very much missing from the EU legislative proposals before us. We must ensure that when audit companies stand over the accounts of big financial institutions, corporations and banks that it is a true and fair view of a company’s position. Currently, they are not legally liable for the accounts on which they sign off. I wish to comment on a recent report by the Financial Reporting Council on international standards in auditing in Ireland and the United Kingdom. It identified an anomaly in the legislation in this country where company law qualifies the idea of a true and fair view with the addition of the words “in accordance with the applicable financial reporting framework”. The Nyberg report outlined that the auditors clearly fulfilled this narrow function according to existing rules and regulations. They did not, however, generally report excesses over prudential sector lending limits to the Financial Regulator. We are talking about lending. When it comes to the banks speculating and lending one would imagine that the auditors would be well placed to spot dangers in this area but, unfortunately, that did not happen. There was a system breakdown both at that level and in terms of reporting back to the Financial Regulator. Our view is clear; while we would support improvements in accountability we must also address gaps in legislation which do not allow for audit companies to be liable for the accounts they stand over. I would welcome a response from Mr. Houlihan on the point.