Mr. Pat Houlihan:

I appreciate that. Senator Cullinane referred to the true and fair view. I was not absolutely clear about it but it is incumbent to give an opinion in respect of the true and fair issue for auditors. He then referred to the Financial Reporting Council anomaly, as he termed it. I gather what he had in mind may have been an article in The Irish Times yesterday. Is that correct? Two issues arose in the article. My colleague John Moynihan is an accountant and he can correct, add to or subtract from what I have to say after I have made my comments. There appear to be two issues. One relates to deferred recognition of impaired loans. Auditing standards have a trigger point in terms of when one can begin to recognise loans that will become impaired. Apparently there was a practice some time back among credit institutions and perhaps other entitles of smoothing out the flows in their accounts in terms of recognising early or recognising later, according to when it suited, such that the overall appearance was of a smooth set of accounts. The international standard maker moved to amend that. In this instance it would appear that the trigger should have been pulled earlier than it was but, as I understand it, there is a set time for the trigger to be activated and in many of these cases that point would not have come. This meant that loans that would become bad loans were there for people to see but the mechanism of the accounting standard was not triggered or the criteria were not met and therefore the process could not have been activated at that point.

The second issue is the conjunction of the true and fair view with accounting standards. Mr. Moynihan may wish to expand on this. From my quick reading of the article yesterday I understand the author was suggesting that auditors were standing behind certain covers put in front of them. The reality is that accounting standards are intrinsic to the production of accounts. Accounting standards are underpinned by Regulation (EC) No. 1606/2002. Any individual standard adopted would be under that rubric and would have been vetted by many institutions in the EU and by member states. Mr. Moynihan and I attend meetings at which these things are finally adopted. They go through a rigorous process and they have a legal status. One must take account of these standards. The true and fair view is arrived at by the application of these standards. There is no sense in which auditors were attempting to seek refuge behind something in this instance. As far as we are aware that was not the case. If the committee requires further clarity Mr. Moynihan will be pleased to supply it.

Reference was made to the issue of the Central Bank supervisor - that certain reporting should have gone to the supervisor, but this did not happen in cases in which it should have happened and so on.