Damien English (Meath West, Fine Gael)
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The purpose of this meeting is to discuss the submissions from the Consultative Committee of Accountancy Bodies - Ireland and the Irish Social Enterprise Network on the Companies Bill 2012, which the select committee will consider in November. I welcome Mr. Brendan Lenihan and Mr. Aidan Lambe from the Consultative Committee of Accountancy Bodies - Ireland and Mr. Chris Gordon from the Irish Social Enterprise Network.

Before we begin, I must outline the position with regard to privilege. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the committee to cease giving evidence on a particular matter and they continue to do so, they will be entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I ask Mr. Lenihan to make his presentation. That will be followed by Mr. Gordon's presentation and we will then have a question and answer session.

Mr. Brendan Lenihan:

I thank the Chairman for the opportunity to address the joint committee. The Consultative Committee of Accountancy Bodies – Ireland, CCAB-I, comprises four main bodies, namely, Chartered Accountants Ireland - of which I am president - the Association of Chartered Certified Accountants, ACCA, the Chartered Institute of Management Accountants, CIMA, and the Institute of Certified Public Accountants, CPA, Ireland, which represent close to 40,000 professionally qualified accountants. All the bodies are prescribed under the Companies (Auditing and Accounting ) Act 2003, under which the Irish Auditing and Accounting Supervisory Authority, IAASA, was established. The authority supervises our regulatory functions. The membership of the bodies comprises not just accountants and auditors in public practice - large and small and all the way down to sole practitioners - but also those involved in industry, company directors and business owners. As stated, I am president of Chartered Accountants Ireland. I am also chairperson of the CCAB-I.

I have worked in public practice in a large practice but also in running my own small practice, and I currently work in industry. Therefore, I have seen the broad ambit of the areas in which accountants work. I am accompanied by my colleague, Mr. Aidan Lambe, technical policy director in Chartered Accountants Ireland and, similarly, his background is in practice and in industry.

We have made a detailed submission on the Companies Bill, which arose as a result of many months of scrutiny by CCAB-I in the areas of insolvency, business law, auditing and accounting. In addition to a number of the policy issues I will raise today, we have passed on to the committee and to the Department of Jobs, Enterprise and Innovation a large number of technical points and suggested improvements. However, I would like to focus on a smaller number of policy related questions. We hope to engage with the Department and offer our suggestions and improvements to help it out in any way that we can on the important task of reforming and updating companies legislation.

The first area I wish to cover is one that may surprise members. Currently, the regulatory and supervisory regime set up under the Irish Auditing and Accounting Supervisory Authority, IAASA, since 2003, although very welcome - we hugely welcome it and have a great relationship with IAASA - is a voluntary regime for accountants. The Legislature has recognised, over time, that accountants do important and difficult work. What we do is important in terms of the way taxes are calculated and collected, how capital markets work and how people in financial distress are advised. Being an accountant is difficult and important work. It requires some competencies around measuring economic reality - past, present and future - communicating that in a clear way and driving advice and decision making. One must also have the integrity and the structure to deal with client money, a practical task that accountants in public practice need to handle.

The Oireachtas in 2003 recognised that accountancy bodies ought to be properly supervised and regulated. We found no issue with that. IAASA currently monitors and approves every change we make in the way we regulate our members, and that is a welcome development from our point of view. What has become obvious over time is that there is an enormous gap in the legislation. If a practitioner is not one of the 40,000 people who are members of the recognised accountancy bodies and one chooses not to join one of those, or joins one and subsequently leaves, or, what is far worse, joins one and is subsequently expelled, one is immediately outside of the scope of the Act. There is no regulation or prohibition on that person using the term "accountant", setting up in public practice and offering his or her services to the public. That may surprise members of the committee but that is the practical reality we face today. That is a very unsatisfactory position. Clearly, there is a very large consumer protection issue at play because, for example, quite rightly since 1 October one cannot have one's house wired by an electrician who is not on a public register. If one is a professional, be it a doctor, a dentist, a solicitor, an architect or a building surveyor, there are legislative prohibitions against one using the respective professional term and holding oneself up as being able to do that work unless one is qualified, but our profession has no such provision. This issue arose quite soon after the legislation was enacted in 2003 and we have gone through a process of consultation. IAASA clearly flagged this as a problem. People contact it in this respect and if a practitioner is not a member of a body, it has to advise that the person is outside the scope of the legislation. The Company Law Review Group, CLRG, has examined this matter also and said that it is an area that should be addressed because it reflects a gap in the legislation.

We have provided, in the briefing document we submitted to the committee, the text of a simple and straightforward amendment that will address this area. It is the right time to do it because we are dealing in the Companies Bill with a number of powers, functions and changes to IAASA as the regulator, including the size of its board. We believe it is the right time to implement this change. Even though there are only four short sections that we have provided to the committee, the principle we are trying to establish is simple and clear. If one holds oneself up to be an accountant, one should be supervised by IAASA. I find it difficult to find any contrary argument to that. It would mean that using the term "accountant" would be reserved for those who have the requisite level of qualifications and skill and who are regulated and supervised by a strong State regulator. I am conscious that most members of the public find it difficult to know the complexities or the questions to ask to understand if their accountant is of one hue or another, or qualified or otherwise, but it is important in terms of this mechanism that they could be assured that anybody who is supervised by IAASA is suitably qualified and competent, and that the people in financial distress in particular would know that they have the protection of a properly regulated accountancy sector with all the protections that go with that. I draw the members' attention to appendix 1 to our submission, which lays out in simple form all that is required to be inserted in the Companies Bill.

It is important to point out that the consulting on this area has already been done. IAASA highlighted this as an issue and said it needs to be done. THE CLRG, a number of years ago, said it needed to be done. It is impossible for us to know how many people would be forced to change the term they use which is what unqualified people would need to do. I suspect there are at least one or two in every provincial town in Ireland but even if there was only one, it is important to note that the current structure, which is essentially voluntary regulation, fundamentally undermines the purpose and scope of the Act and the whole operation of supervision and regulation in the accountancy sector. I commend the text of the appendix to the committee. It is simple and straightforward.

The second issue I wish to cover is the regulation and supervision of statutory auditors, which typically are large auditing entities which audit public interest entities and large, systemically important and quoted companies. In Ireland, those auditors currently are regulated directly by their professional body and that regulation is supervised by IAASA. We, as a professional body, through our chartered accountants regulatory board, remain responsible for monitoring and inspecting audit quality and so on. That is at variance with almost every other developed economy in the world. In those economies there is a strong public sector regulator who carries out that role in a hands-on fashion. Because we are not in accordance with the practice elsewhere in the world, all the parties got together and over the course of a number of years we all agreed and the Government agreed in 2010 that responsibility for the supervision of the quality assurance of auditors of public interest entities should transfer to IAASA, the State regulator. That was done in 2010. There were two implementation tasks to be undertaken. One is the introduction of empowering legislation to help IAASA undertake that role. Last Friday, the Department of Jobs, Enterprise and Innovation published its commitment to bring that in as part of the new Companies Bill that will deal with examinership. It is hoped the legislative provisions that will allow IAASA to undertake that role will be included in the forthcoming smaller companies Bill, for want of a better description. However, a second issue that is holding up this process is related to pension costs and some administrative costs within IAASA. The profession and our clients have always said that we will pick up the cost. It should be and will be Exchequer neutral to move to what is an internationally acceptable model. While it has taken a long period to get a resolution to this, I am not entirely sure what the issue is in this respect I wrote to the Department of Public Expenditure and Reform in May and it responded in June advising that it needed some additional information from the sponsoring Department on ancillary and superannuation costs. Against the backdrop of our having committed that it will be Exchequer neutral, we are puzzled about this but we will continue to talk to the Department of Public Expenditure and Reform.

In conclusion, it is vitally important for the reputation of Ireland that this change is made. To put it in context, the strong public sector regulator in this area in the US is an organisation called the Public Company Accounting Oversight Board, PCAOB, which is a very important economic entity in the US. On its website, the PCAOB says that Ireland is on a very short list of countries where it is currently precluded from conducting investigations and inspections of the audit of Irish companies with US listings. It says it is unable to place reliance on the regime we have because it is not a public sector regulator and it warns investors that it is unable to inspect the audits of Irish subsidiaries of US multinationals and that, therefore, they pose a higher potential risk. This is a huge reputational issue for Ireland. In fairness, we have as a community decided to do this and put ourselves on the same basis as every other developed economy in the world and the profession and its clients have committed to pay for that.

I underline that there are some small implementation issues that are vitally important to get this over the line. The legislation was dealt with last week. Even though we not have seen the text of it, we will be very supportive when it arrives. We will continue to press the issue of public sector pension remuneration. There are a number of issues in respect of this committee's remit as the Joint Committee on Jobs, Enterprise and Innovation, which is so important. The committee looks at legislation to see whether we preserve, maintain and expand employment. There are a number of aspects of the companies Bill about which we have some concerns. One issue that has had a long history is the directors' compliance statement. We do not have any principled objection to a directors' compliance statement. In fact, it is probably duplicative in section 226 of a declaration that directors must make in any event under section 224, which states that they acknowledge their responsibilities under the Companies Act and all kinds of other legislation. Our concern would be that in perhaps duplicating that and the codification of other directors' duties, it may appear to be a disincentive to overseas entities setting up in Ireland. I do not know that it adds anything over and above other declarations and statements of compliance elsewhere in the Bill but the committee should look at it to see whether it adds anything or if it would be a negative in terms of overseas investment.

There is a similar issue with regard to the scope of entities that will be required to have an audit committee. It is likely that the scope of entities will be wider than is required under EU legislation, again setting Ireland apart as somewhere with a higher requirement. That is not necessarily a bad thing because we are very supportive of improving the level of corporate governance generally but in setting a higher standard than that mandated by the EU, the Government needs to be cognisant of the impact on jobs and inward investment.

There is a practical issue with which many members may be familiar in terms of penalties for late filing by small companies in particular. We are only dealing here with small and medium-sized companies which have certain exemptions from audit. At the moment, if one is late in filing one's return as a small company, be it an hour or day, one immediately loses that audit exemption. That appears extremely draconian to us and our members for the practical reason that if I am late doing something, the objective should be twofold - to get me into compliance as quickly as possible and to deter me from doing this again. The current regime certainly achieves the latter objective but it does not achieve the former because if I am told a day after I am supposed to file an annual return that I now have this extra requirement of a new audit for two years, it is likely that I cannot do that for a number of months for practical reasons. This is not the situation across the Border in Northern Ireland. One continues to be exposed to quite a large fine, which is right, but one has the ability to cure one's hand, so to speak, and file the return. I know this is being looked at by the CLRG which came down against it but there are really practical problems. In a small business, there are a number of reasons both good and bad why people might miss the timing of an annual return, such as illness, big orders or redundancy. Members should remember that all we are talking about there are small businesses in the main and that imposing a requirement on them that could take a number of months to fulfil is not supportive of the objectives.

There are two smaller issues. We are calling for the removal of the 20-partner limit - more to reflect the economic reality of what goes on in terms of structures of big partnerships in the accountancy area in particular. People feel they are dealing with big multidisciplinary partnerships but the legal reality is that they are not. Due to the structure, they must deal with a series of interlinked partnerships only because there is a legislative requirement or maximum of 20 in terms of the number of partners. We have provided some suggestions about how that could be addressed - more to relieve the administrative burden but also to help the public and clients to know exactly who they are dealing with.

We understand why the board of the Irish Auditing and Accounting Supervisory Authority, IAASA, is being downsized and are generally supportive of that but we commend to the committee the idea that best corporate governance is about having a variety and diversity of voices on the board. The current board of IAASA has many insiders so it has the profession itself and a number of regulators. We urge the committee to make room on the board for users, purchasers, clients, businesspeople and broader stakeholders because best practice in corporate governance does tend to involve having diversity on the board. Those are my short comments. I would welcome any questions and again sincerely thank the committee for the opportunity to engage with it today on what are very important policy issues.

Damien English (Meath West, Fine Gael)
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We will hold questions until after Mr. Chris Gordon's presentation. We are constrained by time. I now call on Mr. Gordon to make his presentation on the Irish Social Enterprise Network's submission on the Companies Bill.

Mr. Chris Gordon:

I thank everyone for inviting us here today. I did not realise the gardaí were out for us. I am Chris Gordon and I am here to represent the Irish Social Enterprise Network, which is the largest open and inclusive network for social enterprises, social entrepreneurs and social innovators in Ireland. I am also able to speak as chairman and founder of the Irish Export Co-operative. I will make submissions about co-operatives and community interest companies today. The Irish Export Co-operative is a large group of small, medium and micro enterprises that have come together to reduce the cost of their exports. In many cases, this is the only opportunity they have to export. I want to present two main company types.

The first one is co-operatives. Speaking today on behalf of members of the Irish Social Enterprise Network, there are certain things I would like to see. The first is the inclusion of co-operatives as a section in the companies Bill to reflect the co-operatives that exist currently in Ireland. While there is co-operative law in Ireland with a

promise for further legislation to be introduced, there are already examples of Irish limited companies that have co-operative rules. It is important to define this distinction

as many of these organisations do not get the recognition they deserve. Co-operatives such as the Irish Export Co-operative trade as limited companies with co-operative rules. The organisation has reduced the cost of exports greatly for all our members. That would be the first submission. There are other examples. I can think of roughly 100 enterprises that are limited companies with co-operatives rules that do not get the recognition under the companies Bill.

The second suggestion is for the inclusion of community interest companies. A community interest company, CIC, is a limited company with special additional features created for the use of people who want to conduct a business or other activity for community benefit, that is, a social mission. CICs can be limited by shares or by guarantee and have a unique statutory "asset lock" to prevent the assets and profits being distributed except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes or transferred to another asset-locked organisation such as another CIC or charity. This social purpose model means staff can be directors and board members. Some of the members here who are already members of charitable organisations understand the frustration caused when people set up a limited company and apply for charitable status only to find that they cannot be a director and a manager at the same time. Perhaps we need to be a bit more aware of the fact that there are companies set up with a social mission that can trade as social enterprises.

A social enterprise, as the Irish Social Enterprise Network sees it, is a profit-seeking company that has a social mission. A social mission could be charitable, such as preventing homelessness. These social enterprises sell products or services to make a profit that can be used to further its mission, which is generally for community benefit. Community interest companies, CIC, where directors can also receive remuneration, have the significant benefit of reducing the risk aversion that is common to charities with voluntary boards. While there is nothing in a CIC that cannot be done by a traditional business, its community benefit reporting, community tests and asset locks gives confidence to funders, commissioners and the public that it is a genuine social business rather than a cleverly marketed private business.

As the European Union will pass money through the social business initiative in 2014, the non-inclusion of social enterprise clauses will lead to significant problems for Government and society if not addressed. My overriding goal is to ensure we have a vibrant and fit for purpose Companies Bill that allows for innovative and regulated social enterprise and social entrepreneurship in Ireland. We have seen through demonstrable examples how social enterprise and co-operatives are able to create work and jobs in Ireland and, I hope, boost the economy. I am here on behalf of the organisations I represent to offer pathways and advice on how this committee can implement best practice. I am also able to draw on the expertise of other individuals who were unable to attend this meeting. These individuals would be happy to make themselves available to the committee.

Dara Calleary (Mayo, Fianna Fail)
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I welcome the representatives from both organisations, particularly today - budget day. I generally support what Mr. Lenihan is trying to achieve but who currently sets the criteria for membership of the professional bodies? Do different rules apply for the various professional bodies? What is the recourse to appeal for somebody who may seek to become a member of one of the bodies?

If we proceed with this, we will be excluding people from their professions if they are not members of a professional body. How many instances have occurred to date of unregistered accountants being involved in illegal or inappropriate activities? Has the number of unregistered accountants been estimated beyond a basic estimate of two per provincial town?

I would like to meet Mr. Gordon again to pursue further some of the issues he raised. How do community-based companies, such as farmers' markets or community co-ops, function at present and how will his proposals enhance their operations?

Mr. Brendan Lenihan:

Prospective members have a choice of nine professional bodies. The standards we set in regard to educational attainment and continuing professional development and competency are controlled by IAASA. It is not possible for a body to lower its standards significantly or raise them unrealistically in order to exclude certain individuals. It is not a question of any one body acting as a monopoly or otherwise trying to force people to take one or two options. A number of the bodies also operate in other jurisdictions, in which case they are supervised by regulators in respect of their standards and competencies. This is a well-established area.

It is impossible to estimate the scale of the problem of unregistered practitioners. I get the sense from meeting our own members that it is a significant problem. It has come to the fore in recent years as circumstances became more testing for clients and the advice more focused on difficult areas that previously had fallen into disuse, such as insolvency. IAASA has told us it regularly receives inquiries about unregistered accountants but it finds it difficult to collate information on them because they are outside its scope. As I noted in my presentation, even if the number is very small, there ought to be a principle that somebody who holds him or herself out as an accountant should be supervised by the State regulator. If one is not willing to be supervised, one should not call oneself an accountant.

Dara Calleary (Mayo, Fianna Fail)
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In terms of making requirements retrospective, is IAASA blocked from pursuing someone who has traded as an accountant for 30 years and does not have a qualification under the new rules but has a track record and has not breached any company law? Have the legal advisers to Chartered Accountants Ireland drawn attention to legal difficulties about making the requirements retrospective?

Mr. Brendan Lenihan:

Under the law as it stands, it is open to anybody to trade as an accountant. A change would only apply from the date on which it is introduced. At that stage, the decision is open to the individual concerned to re-term him or herself as something else, such as business adviser, financial manager or bookkeeper, which would be a more accurate description, and not hold him or herself out as having not only the competency and qualifications but the facilities, such as professional indemnity insurance, which members of bodies can typically access when they offer services to the public. I suspect there would be problems in making the requirement retrospective, but it is important from here on in that we clearly identify those individuals who are supervised by the State supervisory authority and those who are not.

Mr. Aidan Lambe:

I have been involved in professional bodies for more years than I care to remember but certainly during that period I came across documented cases of members continuing to practise after being expelled from bodies. I am aware of one case in which an individual was subsequently convicted of fraud.

Mr. Chris Gordon:

In regard to how social enterprises trade at present, a considerable number of organisations are set up under existing company laws. Trading companies are established as companies limited by guarantee or by share capital and they subsequently apply for charitable status. The difficulty with that approach is that it is subject to a number of constraints. Double taxation issues arise when it comes to trading services and products.

Many co-operatives exist under co-operative legislation such as the Industrial and Provident Societies Act 1893 and the Friendly Societies Act 1936. I understand these Acts are under review. Most companies that are set up to trade as co-operatives are advised to become limited companies and use co-operative rules. What we mean by the word "co-operative" is that every person has one vote regardless of share capital or money invested. In the Irish Export Co-operative, members join for €30 per year and the membership elects a board of directors of the limited company. This allows for oversight from the Companies Acts and the Office of the Director of Corporate Enforcement.

The Forfás report estimates there are 1,400 social enterprises employing 25,000 to 33,000 people. We believe there are many more that do not subscribe to the label "social enterprise" and, for the most part, trade as companies limited by guarantee or share capital. However, given that the potential for this sector is in the region of 65,000 people, we are falling behind in social enterprise largely because the mechanisms are not available. I hope we do not fall further behind because we can lead in this area. Social enterprise could be a part of our DNA. We already have strong co-operatives. Everybody is a member of a credit union and other organisations. However, aside from credit unions, agricultural co-operatives and water schemes, co-operatives are not common in Ireland compared with the UK, which has a variety of member owned organisations that offer stability to their members, as opposed to a small number of directors or shareholders.

Damien English (Meath West, Fine Gael)
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I thank Mr. Gordon. Does Mr. Lenihan wish to comment?

Mr. Brendan Lenihan:

It is a supplementary comment on Deputy Calleary's question. In the text of our proposed amendment, we have stated that a qualified person would be a person who was a member of one of the bodies or otherwise certified by the supervisory authority as being a person entitled to describe himself or herself as an accountant. We trust in the process that the Irish Auditing and Accounting Supervisory Authority, IAASA, might put in place to certify other folks as competent. This is not an effort to build up professional bodies. Rather, it is an effort to ensure that, if one holds oneself out to be an accountant, one is supervised by IAASA. We have allowed the provision such that if IAASA forms the view, we are perfectly happy that the public is protected.

Damien English (Meath West, Fine Gael)
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Deputies Jonathan O'Brien and Áine Collins are next, but Deputy Lawlor must leave and wishes to ask a quick question.

Anthony Lawlor (Kildare North, Fine Gael)
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I apologise for that. My question is on the big four auditing firms. Are the witnesses telling us that those firms are not covered under IAASA's regulations, that is, they are self-regulated?

Mr. Brendan Lenihan:

Let me explain the structure. Currently, it is supervised self-regulation. Those firms are not unregulated or even self-regulated at their level. The big four firms are regulated by the Chartered Accountants Regulatory Board, CARB, which is within our institute. The CARB does a fine job, but it is a different model than pertains elsewhere in the world. In other countries, the big four are supervised by a public regulator. This is the point that everyone, including Government policy, agrees we must reach. We are nearly there. Last week, there was a commitment to put the last legislative pieces in place. There is a practical commitment, which we will fund, on sorting out the administrative arrangements for getting people in place. I cannot underline enough how important it is for our international reputation and risk management that we reach the point of public sector regulation as quickly as possible. I am speaking not only for the profession, but for the firms and all stakeholders. Lest members believe that the firms are unregulated or self-regulated, they are regulated by their professional bodies, and thoroughly at that, but the structure is wrong. We have all agreed that it needs to change and will change.

Jonathan O'Brien (Cork North Central, Sinn Fein)
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A point was made about a supervisory authority having the scope to entitle someone to describe himself or herself as an accountant. We have no figures on the number of people who would be affected in terms of how they described themselves. Some have been operating for many years and probably have the experience of working as accountants even if they cannot term themselves as such. Will there be a lead-in to allow them to obtain the necessary qualifications?

Will the witnesses provide further details on the removal of the 20-partner limit? Are they seeking relief just in respect of accountants or would the change affect people outside the accountancy profession?

I have a great deal of sympathy with Mr. Gordon's presentation. I am a member and was the chairman of a board of a limited company that was governed by co-operative rules. This approach is becoming more popular. Consider sport. Almost every League of Ireland team is being set up as a co-operative and operated as a limited company. There has been significant growth in that area. Will this require a new section within the Bill or can it be accommodated within the existing heads?

Damien English (Meath West, Fine Gael)
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I will call Mr. Gordon first.

Mr. Chris Gordon:

The Deputy is right, in that these co-operatives already exist. There is a wealth of small to medium-sized enterprises, SMEs, or members of the public who are availing of limited company status under company law and applying co-operative rules. I am glad to hear that the Deputy was a member of one. I am sure that most other committee members are likewise, although they might not even know it, which is quite interesting.

The question of whether it should have its own section is entirely up to Members. I would love to be able to give a professional legal opinion. I would say "Yes". We struggled to set up the Irish Export Co-operative. We should not have had to struggle. We were a group of SMEs that were simply trying to combine our volume to reduce costs. A member of our co-operative might ship out 40 items per year while I might ship out 20 items. If our volumes are combined, I can help to negotiate better deals.

Besides the League of Ireland, another example is Medisec Ireland Limited, which was set up by former Deputy Jim Glennon some decades ago, which provides indemnity insurance for doctors and undercut the best available quote of the time by 50%. The majority of doctors are members. In our case, we are able to reduce costs. Exporting more creates more work, which creates more jobs. One should be able to go to a county enterprise board, new local enterprise office or Enterprise Ireland and not just pick a limited company up off the shelf. As a group, one should be able to point to the co-operatives section in the Bill, pick a co-operative up off a shelf and apply co-operative rules. It is ready made. We should encourage these types of organisation.

My gut feeling is that this matter should constitute a section. It could be simple. It would outline the co-operative rules to be applied and give co-operatives limited company status. The latter provision would not create a difference, as we could refer to the first 15 sections of the new companies Bill. A section would recognise the fantastic work of co-operatives that already exist and provide encouragement to reduce the cost of, for example, payment plans for bank charges or whatever the next issue is that needs a co-operative to make it work.

Jonathan O'Brien (Cork North Central, Sinn Fein)
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I am a great advocate of the proposal. The League of Ireland found it advantageous when accessing finance. Even corporate sponsors were more willing to get involved because of the co-operative status, which differed from a sole owner of a football club who might come and go. As Senator Clune knows from Cork city, a co-operative is grounded in the community and is more likely to continue operating.

Mr. Chris Gordon:

The majority of people who have set up new companies applied to the Companies Registration Office to do so. For most, their interaction with the process is through accountants. I apologise to my fellow witnesses but, when someone approaches accountants, they generally ask why that person would not own the company. We have no intention of owning the Irish Export Co-operative. It is meant to be a co-operative. Accountants go by the law that governs them. I do not want to speak on their behalf but, if more credence were given to co-operatives through a section in the Bill, it would be an incentive to use this model as a mechanism.

Damien English (Meath West, Fine Gael)
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I invite Mr. Lenihan to follow that as best he can.

Mr. Brendan Lenihan:

We are very co-operative with co-operatives. They have been an important feature of the agricultural sector for a long time. Accountants have a great deal of experience in that regard. That exact model is not being discussed, but we will support whatever structure is laid down in legislation with the right business fit. It should not be a problem.

Deputy Jonathan O'Brien asked about lead-in times. In other professions, for example, architecture, there are sunset clauses, etc. While we are not adverse to this suggestion, there are practical problems. If one is part-qualified or unqualified, it is difficult to get professional indemnity insurance. One must explain one's circumstances to an underwriter and express one's desire to work on preparing accounts, filing tax returns and, potentially, handling client money. Even an interval period draws many risks. It may be that the right approach is to re-term what one does. There will still be practical problems, for example, procuring professional indemnity insurance or people having a complaint mechanism against practitioners. This is the minimum amount of public protection that people need.

This is the reasoning for our clear amendment.

We could do something that has a sunset clause only to find in three or five years that we have gone through the balance of an economically distressed period and we still do not have the consumer protections that most people think they have. This would sit uncomfortably with us. We will work with members, as legislators, and IAASA to come up with a solution. I commend the straightforwardness of our amendment, which is that at a point in time the public should know that the accountants with whom they are dealing are supervised by the state regulator.

On the 20-partner limit, the relief is already provided for in the Bill. However, it states that all of the partners must be statutory accountants. While some of the larger partnerships in this State comprise between 80 and 100 partners, it is unlikely that all of them are accountants. Pensions is a big area and servicing client needs in this regard requires actuaries and senior personnel. IT is another big competency area, as is the legal area and so on. I believe the Government's intention in terms of enactment of this legislation is right. However, in terms of the practicalities of it, we would like to get to a position whereby in order to avail of the exemption proposed a partnership should be controlled by a majority of accountants. It is the test of control that is most important.

The specific clause proposed in the Bill deals only with accountants. It is appropriate that it be retained as scripted. At the end of the day the Bill deals with auditing and accounting measures. As I stated, the relief already exists. I do not believe the practical intention of the Bill is disrupted by the fact that many of the partnerships include people of different disciplines. A small change would facilitate this.

Mr. Aidan Lambe:

The practical impact of what is currently in place is that while the names of 80 to 100 people may be contained on a letterhead, the reality is that there may be a number of sub-partnerships within a partnership in order to comply with the legislative requirements. Mr. Lenihan is correct that what is needed is a reflection in law of the intention.

Mr. Brendan Lenihan:

We encourage our members to be clear and transparent in their dealings with the public such that if people believe that they are dealing with an 80-partner partnerships, that should be the case. That is the intention behind the amendment. I do not think it adds anything to actually deal with five interconnecting partnerships of 20 people each.

Áine Collins (Cork North West, Fine Gael)
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I welcome the witnesses and the opportunity to discuss this subject. I must first declare an interest in that I am an accountant and a member of a certified public accountancy organisation.

I support the proposed amendment. I established my own practice 18 years ago. Prior to doing so I had to go to college and undertake professional examinations. I operate in a small town in competition with a person using the term accountant but is not qualified. I am required to undergo 60 hours CPD annually and must have professional indemnity. I am also subject to a visit by the institute at least once every two years during which time I am required to produce a list of my clients, from which is selected the names of the person's whose files are to be reviewed. I am competing with someone who is acting as an accountant but who in reality does not have the same offering, which is very difficult. This is also not good for consumers. This is a real issue that needs to be addressed. I welcome the amendment and propose to endorse it.

On the public interest entities, how can we help to move this along? I agree with the witnesses that we need to do something in regard to the CRO fines for small companies. In practical terms, this would mean a small company that is a day late could, if required to undergo an audit, face an additional cost of €2,000 or €3,000 on top of costs already borne. There is a need for some leniency in this regard.

Is Mr. Gordon aware of what the Minister, Deputy Bruton, said in the Dáil in July in relation to co-operatives and proposed changes in that regard?

Mr. Chris Gordon:

Yes.

Áine Collins (Cork North West, Fine Gael)
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Those changes will be implemented next year. I believe co-operatives are fantastic but we do need to change them. I believe the number of them in the country will increase during the next number of years. Co-operatives turn over more in the world than do multinationals. While they provide a fantastic service, none has been established in Ireland for years because of the bureaucracy around doing so. Perhaps what the Minister proposed will accommodate what Mr. Gordon seeks. I look forward to engaging further with the witnesses.

Seán Kyne (Galway West, Fine Gael)
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I welcome the witnesses. My first question is for Mr. Lenihan. It makes perfect sense that there be proper definition and prohibition of those who are not suitably qualified. Mr. Lenihan referenced the 2003 Act. Were the issues raised in that regard pursued at that stage? If not, why not and what particular issues arose?

My second question is to Mr. Gordon. Internationally, how are similar companies classified? Similarly, were the issues of reclassification and new definitions to encompass the CICS being pursued prior to the commencement of this process?

Feargal Quinn (Independent)
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I, too, must declare an interest in that I wrote a book, the last chapter of which was titled, Don't let the accountants win. I have a query in regard to co-operatives. If I remember correctly, up until some years ago co-operatives did not pay any tax. Tax in this area came into force following abuse of the provision by commercial companies which formed co-operatives in order to avoid paying tax. I assume that is way behind us now and settled.

Mr. Chris Gordon:

Deputy Collins is correct about the new provisions for co-operatives, the submissions on which I have read. It is just a grandfather that many of the co-operatives in Ireland exist as limited companies under company law and the Office of the Director of Corporate Enforcement. However, the Office of the Director of Corporate Enforcement has no control over co-operatives. It would only be aware of the problems or challenges faced by co-operatives. For example, it would not be able to intervene in AGMs and so on. This can only be done under IPS and Friendly Societies law. I am aware of the proposed changes. The current 100 or so co-operatives currently in existence should be granted standing and recognition within company law.

Áine Collins (Cork North West, Fine Gael)
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Is Mr. Gordon speaking about companies limited by guarantee?

Mr. Chris Gordon:

Yes, companies limited by guarantee or share capital, as provided for in the companies Bill as drafted, who use the title "co-operative". I am also seeking protection of the word "co-operative". It is important that those that are co-operatives are regulated as such. It should not be possible for any group to simply declare itself a co-operative. There must be a process by which a co-operative can be such, in particular if the social business initiative to be introduced in 2014 is to going to mandate against that.

On Deputy Kyne's question regarding CICs, there are currently 8,000 social enterprises in the UK using the CIC model. Other models being used in the USA include Bcorps and so on. They sit between for-profit companies that are limited and make lots of money and charitable organisations which generate money through fund-raising or other initiatives. Social enterprises generate trading services and have a social mission. Abroad they have different governing types. On CICs, I hope the committee will incorporate into this Bill the first change in this regard in UK company law for 100 years. The reason for this is the wealth of knowledge and information of the past 20 years which indicates that there is no appropriate mechanism for social enterprise to exist in the UK. This has now gone to Canada and will also go to Chile.

I suppose we are just able to take some of the best practices and, hopefully, learn from them. Will Senator Quinn repeat his question with regard to the position of co-operatives?

Feargal Quinn (Independent)
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People used to abuse the concept of co-operatives because the latter were not obliged to pay tax. I presume the position in this regard has changed.

Mr. Chris Gordon:

Yes. The new legislation relating to co-operatives will also address that issue. Any co-operative that is a limited company is governed by the Office of the Director of Corporate Enforcement.

Mr. Brendan Lenihan:

I must declare an interest at this point in that I bought and very much enjoyed Senator Quinn's book, the final chapter included. As someone who has been involved in industry, the Senator talks a great deal of sense.

I must inform Deputy Kyne that the 2003 Act introduced a new model. As I pointed out, that model is very different to those which obtain elsewhere. The then Minister of State, former Deputy Michael Ahern, gave a commitment that the issue would be considered and that a properly structured consultation process would take place. In fairness, the then Minister of State delivered in this regard. IAASA engaged in a consultation on the matter and recommended that it be addressed. It then went to the Company Law Review Group, which examined the position and endorsed the recommendation that it should be addressed. The 2003 Act introduced an entirely new structure and this has - albeit ten years later - been the subject of the consultation process to which I refer. At this point, the matter really ought to be addressed.

In the context of Deputy Áine Collins' question, there is a need to highlight to the Ministers for Jobs, Enterprise and Innovation and Public Expenditure and Reform, Deputies Bruton and Howlin, respectively, and their Departments the importance of implementing the measures immediately. If there is anything the committee can do to underline the urgency and necessity to make the relevant logistical arrangements to implement what is the correct international structure for us, I implore it to do that with us.

Damien English (Meath West, Fine Gael)
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If there are no further questions, Mr. Lenihan and Mr. Gordon may make some brief concluding comments.

Mr. Chris Gordon:

I just want to say thanks very much to the committee. We recommend that CICs and other models could be brought before it in the future, particularly in the context of the opportunity on offer to speak about social enterprise and the role of social entrepreneurship in creating jobs in Ireland

Mr. Brendan Lenihan:

We are celebrating 125 years as an institute. At the beginning of our existence we were given a charter. Clearly, there were accountants in place before that charter was bestowed upon us and these individuals were unregistered and unregulated. Our charter is important and the Government of the day stated in respect of it that the business with which we deal is difficult and important and should, therefore, be properly organised. Some 125 years later, we are at a different stage but the issue remains the same. What we do is difficult enough and important enough and should be properly regulated, structured and organised as a result. We wanted to highlight these matters for the committee because we are faced with a number of very pressing public interest issues. Our organisation was established 125 years ago not for the individual or collective benefit of accountants but rather in the public interest in order to ensure the economy had a supply of people to do what is important and difficult. Now we have the supply, there are issues relating to properly structuring, describing and regulating those people which must be dealt with. We have all the machinery but there is a need for legislative change in order to ensure that everyone will be supervised in an appropriate manner.

I thank the committee for the opportunity to make a presentation to it. If there is any other way in which we can assist its work on the Companies Bill, members may rest assured that we will do so.

Damien English (Meath West, Fine Gael)
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I thank Mr. Lenihan, Mr. Lambe and Mr. Gordon for coming before us. It was very useful to obtain clarification from them on the issues they raised in their submissions. It is hoped that the select committee will spend two weeks debating the Bill on Committee Stage from 4 November next. Members may contact our guests prior to that date in order to check matters, obtain supporting evidence or whatever. In view of the fact that the budget is due to be introduced later, I am aware that this is a busy day for most people. I appreciate our guests giving of their time to appear before us.