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.