Oireachtas Joint and Select Committees
Thursday, 15 December 2016
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Irish Auditing and Accounting Supervisory Authority: Chairperson Designate
I remind members, visitors and those in the Gallery to ensure their mobile phones are switched off or in airplane mode for the duration of this meeting as they interfere with the broadcasting equipment, even when on silent mode. I welcome Mr. Martin Sisk, chairperson designate of the Irish Auditing and Accounting Supervisory Authority.
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 they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They 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 members should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Sisk to make his opening remarks.
Mr. Martin Sisk:
I am very pleased to appear before the committee to discuss my proposed appointment as chairperson of the board of the Irish Auditing and Accounting Supervisory Authority, IAASA, by the Minister for Jobs, Enterprise and Innovation, Deputy Mary Mitchell O’Connor. I believe that my substantial range of regulatory, legal, financial, insurance and general business experience equips me for the challenge of acting as chairperson of IAASA. The committee will see from my curriculum vitae that my regulatory experience extends over a period of 25 years both as Registrar of Friendly Societies for 18 and a half years and as a senior official in the Central Bank of Ireland for more than seven years. These positions involved the regulation of credit unions, co-operatives, friendly societies, trade unions and building societies. I was the last registrar of building societies. Those positions also involved consumer protection enforcement as well as anti-money laundering, terrorist finance and financial sanctions enforcement. I attended the international meetings of the financial action task force, FATF, in that regard on behalf of the Central Bank. My past experience as a board member of various entities and, indeed, my current experience as a board member will be invaluable to me in chairing IAASA.
I refer in particular to my role as chairman of VHI Healthcare for a period of almost three years. I served as chairman at a critical juncture in VHI Healthcare’s history. The company was obliged as a result of a judgment of the Court of Justice of the European Union to apply to the Central Bank for authorisation to act as a fully regulated insurance company. To do so, VHI Healthcare would have required a capital injection from the Government of approximately €300 million as well as other significant changes, both structural and otherwise. Under my chairmanship, a radical five-year strategic plan was developed and implemented, significant cost savings were achieved both internally and externally and successful reinsurance arrangements were entered into with the international reinsurance company, Berkshire Hathaway.
The net result of these and other measures was that VHI Healthcare managed to generate the necessary capital required, without Government assistance, and after a complex process, authorisation by the Central Bank was achieved.
I believe that the experience I have demonstrated, more details of which are to be found in my curriculum vitae, makes me a suitable and capable person to act as chairman of the Irish Auditing and Accounting Supervisory Authority, IAASA. The functions of IAASA, as an independent body responsible for ensuring the quality of auditing of public interest entities, supervising the regulatory functions of the prescribed accountancy bodies, and examining and enforcing listed entities’ periodic financial reporting, are important in assuring the citizens of this country that auditing and accounting continue to be of the highest standards.
I have already assured the Minister, and I wish to assure the Chairman and her fellow committee members, that this position will receive committed and intense engagement on my part. I would be very happy to answer any questions or address any issues that the Chairman or any of the members of the committee wish to raise.
I thank Mr. Sisk for his contribution. I will now take any questions members may have. I would point out that this is not an interview process with the committee determining the suitability, or otherwise, of the nominated chairperson. It is an opportunity for the committee to engage in public session with the person involved.
Mr. Martin Sisk:
In light of the financial collapse we have had, this is an area that has come under scrutiny. Clearly, IAASA, since it was formed, has been doing a very good job from what I can see. It is an area of interest and concern and it is important that very high standards are maintained in the auditing and accounting profession. It is also the case that there are very significant European elements to auditing and accounting these days and that is also a major part of IAASA's work. That is what has driven me to have an interest in chairing IAASA. Sadly, the previous chairman died prematurely in May, so IAASA has not had a chairman since May. That is really my motivation.
There is also another issue, and time will tell us about this one. The advent of the Brexit situation may have implications for the auditing and accounting area in the context of Irish-British relations. As the Senator may be aware, there is a very strong linkage currently between the Financial Reporting Council, which is based in the UK, and the Irish auditing of various professions here, whether it be chartered accountants, certificated accountants or whatever. I will not know until, hopefully, I step into the previous chairman's shoes what the full implications of that will be, but it is an area of concern as to what will happen.
I thank Mr. Sisk for his statement. What would his work programme be? Would he make any radical change in the organisation? Has he any priorities that he would like to outline to us? How does he intend to approach the role?
Mr. Martin Sisk:
The first point I would make is that I have not stepped inside the door of IAASA yet because the procedures laid down require me to appear before this committee before I can do that. I will not make any premature judgments about what I might want to do because I have yet to meet the board for the first time. I have to meet the new chief executive, who was only recently appointed, and the staff and assess exactly where they are at currently. I am relying on the information I have from the annual report and all other related documents.
To return to the point the Deputy raised, I would like to review the existing work programme. There is an obligation on IAASA to produce a three-year work programme, which is submitted to the Minister. As the new incoming chairman, I would like to review the existing work programme to see if there are any new developments that need to be taken into account in that respect. The other element is to start the process of work involved in producing the next work programme. As I have said, a number of EU issues combined with, possibly, Brexit related issues are ones that I would like to have examined urgently in terms of difficulties that might arise very quickly.
Will Mr. Sisk give his view, if it is in order for him to do so and I am sure it is, on the conflicts of interests, whether real or perceived, among firms in the accountancy industry where they provide a regulatory audit service to client firms and perhaps taxation consultancy advice and also provide and sell other services to the same client firms? The accountancy firms, large and small, will say there is no conflict of interest, that there is a Chinese wall, and that it is regulated, but others take a different view in that if one is the auditor of an organisation, one should not be involved in supplying it other services, including consultancy and other related services. What is Mr. Sisk's view on that?
Mr. Martin Sisk:
It is an interesting subject, to say the least, and in light of the financial collapse, it is even more interesting in a way. Statistically, there are approximately 35,000 members of prescribed accountancy bodies in this country. That is a great number of people working in the economy in that sense of the word, whether they are providing, as the Deputy said, business services or taxation services before we even get near the auditing side of things. They are providing an invaluable service to their local communities, local small businesses and so on. There are a vital cog in the economy. Then there are 3,500 accountants who are much more tied into the auditing side of things and 1,500 firms that are registered as statutory auditors.
As a result of EU directives that have come into play recently from June 2016, and I will be very interested to see what progress has been made on this issue, IAASA now has an obligation and the responsibility of inspecting, investigating and directly overseeing the performance of the statutory auditors, the big firms. Up to now it did not have that responsibility. There are eight big firms that carry out the audits of entities that sell and trade in marketable securities on the open market. I am referring to all the credit institutions, in effect, all the banks, and all the insurance undertakings, so we are talking about all the insurance companies. IAASA, for the first time, is now the direct regulator of that issue. Under those EU regulations, there are rules specifying that these firms can only audit, say, a bank for a limited period of time. The maximum period they can audit a bank now is ten years. They can possibly apply for an extension of another two years but that is it. A bank, insurance company or one of those big firms trading in securities has to change its auditors, effectively, after ten years. Up to now that rule did not exist. There were no specific rules like that.
Another other issue is the rotation of the individual partners within the audit firms.
There are new rules about that as well which are much stricter. Up to now, those obligations were not there. I will be interested to see how that initial process has progressed. In addition, I will be anxious to see that it is enforced quite strongly and quite rigidly as we go forward.
The bigger question on the smaller firms is a difficult one. I agree there is a perception that there are conflicts of interest, left, right and centre. I would be anxious, perhaps, in due course, subject to discussing this with the board and the staff in IAASA, to examine the possibility of widening that set of rules to come down the chain to the smaller firms. There are practical issues involved. In any rural town, there are only so many firms. Local communities, understandably, would be anxious to still use those local firms rather than having to off, 50, 60 or 100 miles away, to another firm. It is an ongoing dilemma.
I thank Mr. Sisk for his presentation. Carrying on from what the previous speaker was referring to, there was considerable concern during the financial meltdown that many firms that had been audited and given clean bills of health were subsequently found to be anything but secure. Is it the purpose of this organisation, IAASA, that Mr. Sisk mentions to audit the auditors and conduct spot checks? What Mr. Sisk told us about the change in the law is interesting. It will give some succour to the public to have more faith that there is a watchdog overseeing all of this. Clearly, the regulations and practices in the past failed miserably to address this issue. Has Mr. Sisk any comment to make on that?
Mr. Martin Sisk:
Under the structure of IAASA, there are the nine prescribed accountancy bodies. They conduct the general regulation of their individual professions. Six of those are described as recognised accountancy bodies and they also oversee the firms that carry out auditing. That is the way it has been for some time. The important change thanks to EU legislation - the EU aspect of this is important as we go forward - is that the eight big firms, which up to now were subject to simply regulation by their own bodies, from now on will be subject to direct regulation, inspection and investigation by IAASA. That is an important and significant development. That should much more confidence to the Government, to the Oireachtas and to the public in general that those large firms are carrying out the job they are supposed to be doing. I hope that as time goes by, it will become more apparent that the work of IAASA will ensure that this is what will happen.
I thank Mr. Sisk for coming here to engage with us. I welcome that some of his work programme will be along the lines of EU issues and Brexit. For the past three months, the committee has been dealing with Brexit issues. Today, we are meeting the Minister, Deputy Mitchell O'Connor. That will be our final discussion on Brexit for this year. We will produce a document at the end of January or the start of February, and Mr. Sisk will be more than welcome to see the work we have done during the past three months. We have engaged with quite a number of agencies and employee groups, employer groups and small business groups.
On behalf of myself and the committee, I wish Mr. Sisk every success in his role. We look forward to meeting him again in the future. I also want to wish Mr. Sisk all the best for Christmas and the new year.