James O'Connor (Cork East, Fianna Fail)
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I welcome everyone to our sixth public meeting. Before we proceed, I have a few housekeeping matters to go through, as follows. I wish to explain some limitations to parliamentary privilege, and the practices of the Houses with regard to references witnesses may make to other persons in their evidence. They are protected by absolute privilege in respect of the presentation that they make to the committee. This means that witnesses have an absolute defence in any defamation action for anything they say at the meeting. However, they are expected not to abuse this privilege. It is my duty as Chair to ensure that this privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

I advise members of the constitutional requirement that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask any member partaking via Microsoft Teams that prior to making their contribution to the meeting they confirm that they are on the grounds of the Leinster House complex.

Members are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if statements are potentially defamatory in relation to an identifiable person or entity, the member will be directed to discontinue their remarks. It is imperative that any such direction be complied with.

I propose that we publish the opening statements and submissions provided by the witnesses on the committee website. Is that agreed? Agreed. In regard to speaking arrangements, I invite the witnesses to speak for five to ten minutes, while members can speak up to a maximum of seven minutes. Members may be called as they appear on the week 1 speaking list. Members may speak more than once. Is that agreed? Agreed.

The functions of this committee, under Standing Orders, is to report to the Houses of the Oireachtas on any matter relating to legislation, policy, governance, expenditure and administration of the Department of Enterprise, Tourism and Employment, and also State bodies within the responsibility of the Department. The number of agencies of the Department will shortly rise to 11. The committee considers it important to engage with agencies as well as the Department. The committee also has an oversight role over the Irish Auditing and Accounting Supervisory Authority, IAASA, in accordance with section 929 of the Companies Act 2014. The committee also has a role in meeting the chairperson designate of any body or agency under the aegis of the Department to discuss his or her strategic priorities for the role. The guidance on the appointment of chairpersons of State boards suggests that the committee would like to discuss the approach the chair will take to their role as chairperson, their views about the future of the authority and their strategic priorities for the role. The committee would also like to discuss any other related matters. I am delighted to welcome here today Ms Aisling Kennedy, chairperson of the Irish Auditing and Accounting Supervisory Authority. She is accompanied by Mr. Kevin Prendergast, chief executive. I now invite Ms Kennedy to make her opening statement.

Ms Aisling Kennedy:

I welcome the opportunity to appear before the committee to discuss the approach I will take to my role as chairperson of the Irish Auditing and Accounting Supervisory Authority, my views about the future contribution of IAASA, and my strategic priorities for the role.

I was honoured to be appointed by the Minister, Deputy Calleary, then Minister of State with responsibility for trade promotion, digital and company regulation, as chairperson of IAASA on 17 December 2024. I had previously served as a member of the board of IAASA since December 2020. The functions of IAASA, as an independent body responsible for supervising the regulatory functions of the prescribed accountancy bodies, monitoring the financial and sustainability statements of listed entities for compliance with relevant standards, inspecting the audits and sustainability assurance engagements of public interest entities and investigating breaches of standards, are essential to maintaining public confidence in the integrity and quality of auditing and accounting. These functions support IAASA's mission, which is to uphold quality corporate reporting and an accountable profession.

I will begin by providing the committee with a brief overview of my background and experience. I am an actuary by profession with more than 40 years' experience in the financial services industry. I have undertaken a diverse range of management and consulting roles in Ireland and the UK. I served for a number of years as director of professional affairs for the Society of Actuaries in Ireland, during which time I led the development of actuarial professional practice standards and the certification of statutory actuarial roles. I am now an independent non-executive director of four insurance companies, one of which I chair, and a fund services company. I chair the audit committees of three of these companies. In the UK, I serve on the board of a FTSE 250 company and chair its sustainability committee. My experience on the IAASA board since 2020, and on the boards of several regulated entities, has provided me with a strong grounding in regulatory processes, reporting requirements and accountability structures. As a member and past steward of a trusted professional body, I believe in the importance of effective oversight and accountability in ensuring high professional standards.

I will continue by sharing the approach I will bring to the role of chair of IAASA. In so doing, I wish to acknowledge the work of my predecessor, Mr. Martin Sisk, the strong leadership team in place at IAASA, led by chief executive Kevin Prendergast, and the collective experience and commitment of my fellow board members, with whom I have served over the past four years. IAASA is a small organisation, albeit with deep subject matter expertise, having just 36 employees organised across seven teams, most of whom I am glad to say I have had the opportunity to meet in person.

In 2023, IAASA canvassed the views of its stakeholders as part of its commitment to continuous improvement. The results showed that IAASA enjoys a strong reputation. Its decision-making approaches were well regarded and seen to reflect its values, including its independence, fairness, robust actions and consistent decision-making. Key strengths highlighted were IAASA’s independence, staff expertise, accessibility and clear values. IAASA is viewed as effective in achieving its mission and key strategies.

As incoming chair, I am mindful that this is an organisation that is on a strong and steady course. My role will be to lead the board as it supports and challenges the leadership team to maintain that course, as well as addressing new and emerging issues as they arise. My focus will be on supporting continued excellence, adapting to new demands and ensuring that IAASA remains firmly anchored in the public interest. I will endeavour to support a culture of openness, accountability and balanced decision-making. As the regulatory landscape within which IAASA operates continues to evolve, I will listen to those we regulate, to fellow regulators and policymakers and, importantly, to the public, whose interests IAASA serves.

Turning to the future contribution of IAASA, in brief, this will be to continue its public interest mandate by enhancing audit supervision, implementing the oversight of sustainability assurance, influencing the development of international standards and regulation, promoting sector excellence and building internal capacity in order to ensure trust in Ireland’s corporate reporting framework into the future.

IAASA is preparing its three-year work programme for the period 2026 to 2028, which will be designed across three key strands, namely, delivering effective regulation, promoting high standards and enhancing organisational capability. While the new programme will in one sense represent a steady evolution of the current 2023–25 programme, in another sense IAASA’s role has expanded significantly. With the implementation of the corporate sustainability reporting directive, CSRD, notwithstanding the recent stop-the-clock measures, come significant new responsibilities for IAASA in inspecting and regulating sustainability assurance engagements. The organisation has made a significant investment in preparing for the implementation of CSRD. Its inspection of a selection of wave 1 sustainability reporting will represent a milestone.

The environment in which IAASA operates continues to change rapidly. The demands on financial reporting and audit are growing in complexity, expectation and public scrutiny. The impact of new technology, particularly artificial intelligence tools, represents both a challenge and an opportunity for effective accounting and audit regulation. The changing landscape of the accounting profession, its education programmes and the structure and ownership of accounting and audit firms will present evolving issues for IAASA and its fellow audit regulators in Europe and beyond.

I hope IAASA will continue to have a significant role in shaping audit and accounting standards in Europe and globally through its membership of the Committee of European Audit Oversight Bodies, CEAOB, the International Forum of Independent Audit Regulators, IFIAR, and, over the next two years in particular, through the appointment of its chief executive, Kevin Prendergast, as chair of IFIAR.

As chair, my foremost priority is to ensure IAASA remains a strong, independent regulator that acts in the public interest and fulfils its vision of public trust and confidence in quality auditing and accounting. The quality of statutory reporting and audit is fundamental to how our economy functions and how public confidence is sustained. IAASA’s role in oversight and enforcement will continue to be essential in that regard.

It is also a priority for me that we optimise the effectiveness of the board, leveraging the diverse perspectives and capabilities of its individual members effectively to support and challenge the leadership team. The board includes representatives from the Central Bank, the Corporate Enforcement Authority, the Revenue Commissioners, Euronext and the accountancy profession, providing a rich blend of technical expertise, regulatory insights and governance experience to pursue a shared objective that IAASA remains a high-performing organisation.

My third priority is that we continue to build and develop IAASA’s future capability in order that it is well positioned to face future challenges across the dimensions of people, systems and governance. We will continue to invest in strengthening the resilience and agility of IAASA’s work force in order that it is equipped to respond effectively to its dynamic environment. We will engage with and adapt to legal, market and technological shifts to ensure that IAASA remains agile, resilient and responsive to new developments. The board will fully support these objectives, ensuring they are pursued within a robust and forward-looking governance framework.

I thank the committee for the opportunity to present this submission and look forward to addressing any questions members may have.

James O'Connor (Cork East, Fianna Fail)
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I thank Ms Kennedy. At the outset, I congratulate her on her new position. I have a short number of questions. Given the evolving complexity in financial reporting and the rise of artificial intelligence tools in corporate audit, how will IAASA ensure that smaller audit firms in Ireland are not left behind by these technological shifts?

Ms Aisling Kennedy:

In practice, the involvement of IAASA and the work we oversee tend to be with the larger firms. We also engage with the regulatory bodies and have dialogue with them as to how they are supporting and developing the role of all of their members. Does Mr. Prendergast wish to add to that?

Mr. Kevin Prendergast:

First, auditing standards are technology neutral, so there should not be a requirement for artificial intelligence. The potential for artificial intelligence and where it will add value is in those very large and complex audits where the challenge is in getting your head around the data and engaging with the complexity of dealing with things like asset valuation and assessment of income, for example. One would hope that for the small and medium-sized practitioners, which deal with small and medium-sized entity audits, that level of technical investment will not be as necessary as I believe it will be for those very large firms, which, as Ms Kennedy indicated, we regulate directly.

James O'Connor (Cork East, Fianna Fail)
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I appreciate that. There are ongoing concerns about cost competitiveness for Irish businesses. How does IAASA ensure its regulatory and reporting requirements, particularly around audit and sustainability assurance, do not impose a disproportionate compliance cost, particularly on smaller businesses? In this committee, we are hearing a lot that smaller businesses in particular are under enormous pressure. Do the witnesses have any comment in that regard?

Ms Aisling Kennedy:

The role of IAASA is to implement policy. We welcome the recent call from the Minister, Deputy Burke, to look at the administrative burden. That is something we continue to do. To provide a recent example, for one of the standards we are responsible for, we consulted on its application and, in fact, reduced its scope in support of that motive to continue to review administrative burden and, where possible, reduce the complexity of what is expected.

James O'Connor (Cork East, Fianna Fail)
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With IAASA's increased enforcement powers, including the ability to sanction professional bodies and auditors, how does the authority ensure transparency and public trust in how these investigations are handled?

Ms Aisling Kennedy:

That is a really important issue. We are very committed to transparency. In the case of any such sanction, we publish the results on our website. Mr. Prendergast might have more to add.

Mr. Kevin Prendergast:

Ms Kennedy has made the point very well. We are very supportive of transparency in the enforcement work we undertake. Details from all of our historical enforcement actions are available on our website. We also have our own rules and procedures as to how and when we undertake investigations. Again, they are all available on our website. We are transparent. Moving on to the entities or bodies we regulate, they do an awful lot of enforcement of their members at the small and medium level. We require the same sort of transparency there.

Ms Aisling Kennedy:

The board has recently instigated a process whereby, on an annual basis, it investigates or delves into the enforcement actions and investigation processes undertaken in the preceding year. That would be one of the elements we would look at, including the published statements. As a professional, one of the important dimensions of enforcement action is to shine a spotlight on what is needed in terms of maintenance of standards. That publication is an important educational facet to it as well in shining the light on what is and is not acceptable.

James O'Connor (Cork East, Fianna Fail)
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I thank the witnesses for answering those questions. I invite members of the committee to speak. Would Deputy Clendennen like to comment?

John Clendennen (Offaly, Fine Gael)
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I thank both witnesses for coming in and joining us. To pick up on the competitiveness aspect and the area of pricing, how do professionals within the sector determine pricing? How does the IAASA ensure that there is value for money as a service to its clients?

Ms Aisling Kennedy:

I will hand over to Mr. Prendergast in a moment to comment in detail. I will make some brief remarks. Pricing is not a dimension for which IAASA has regulatory powers. It is a function primarily for the marketplace to determine pricing. My experience beyond IAASA as a customer of audit firms is that customers apply quite a lot of price pressure on those firms, but I will hand over to Mr. Prendergast for any further comment.

Mr. Kevin Prendergast:

The Deputy has made the point. First, there are more than 1,000 auditors in the country. There are price pressures in the market itself that drive that down. IAASA would like to see competition on quality rather than price. This should not just be a sort of product that entities purchase. It should provide trust and a degree of security, not just for the people who invested in a company, but also for the directors of a company that their internal controls work effectively and that they can place trust in the financial statements and the systems that have created those financial statements. For us, it is as much about providing a quality service from the profession as it is about the price per se.

As Ms Kennedy pointed out, it is not an area we regulate, but we hear comments both ways. We hear some comments that audit is overpriced, and other comments that it is very difficult as a small and medium practitioner to be able to provide a quality service in compliance with law and regulation at some of the price points that are out there. When you hear both sides, that is perhaps evidence that the market is working, but I do not deny that it can be a tough market for small and medium practitioners in particular.

John Clendennen (Offaly, Fine Gael)
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Does the IAASA feel there is an unfair advantage for the larger players?

Mr. Kevin Prendergast:

If the Deputy is directing the question to me, there is no getting away from it because of the nature of the laws that underpin audit. Most of our laws come from Europe, but much of the standards by which audits are carried out are developed globally. In Europe, efforts seeking to reduce the administrative burden have been led at Commission level. There is still a focus on audit needing to do a good job. You only need go back a few years to Wirecard, which was probably one of the most significant audit failures that took place in the EU. As a result, there is a focus on the need for audit to do its job. Similarly, international standards for auditing will apply to a corner shop or to the largest multinational. International standards in auditing are more or less the same. They can manage to scale, but the fundamental standards are the same. It makes life difficult. What we would hope to see, as I said, is a competition on quality rather than price.

Ms Aisling Kennedy:

For the public interest entities whose reporting IAASA directly oversees, it is a small number of the large firms who operate within that space because of its complexity. Different segments are the market are served by firms of different scale. We talked about the use of AI. That is a developing space, but there are lots of data analytics tools that are starting to be used by accounting firms that can potentially level the playing field in facilitating smaller and medium-sized practitioners to do some of what the bigger firms have traditionally been able to do.

John Clendennen (Offaly, Fine Gael)
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I would not like to become over-reliant on AI from a small- and medium-sized perspective either. From an auditing and accountancy perspective, normally when you are on these floors, they are not a great place to be. It can be bad news. There have been several examples in recent years where auditors or accountants may not have reached the required standard.

In terms of the professional register, there are five recognised organisations. What is IAASA's process in terms of striking off entities from the professional register? How often does it occur? What kind of numbers would it be on an annual basis? When substandard services are being brought to light through a public forum such as this one, how does IAASA address that? What is its engagement with individuals on the register? Does IAASA go to them reactively? How does that work?

Ms Aisling Kennedy:

Our supervision is of the regulated professional bodies, rather than the members of the bodies themselves. That-----

John Clendennen (Offaly, Fine Gael)
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Would IAASA put the pressure on the regulated-----

Ms Aisling Kennedy:

We put the pressure on the regulated professional bodies. Our dialogue is with them to ensure that they are supervising their members adequately. There are regular forums, which I will let Mr. Prendergast speak to in more detail, in which there is that engagement between our supervision and quality teams and the relevant counterparts in those professional bodies. The professional bodies are accountable to IAASA. We then ensure that they are putting the appropriate pressure on their firms.

John Clendennen (Offaly, Fine Gael)
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Would these entities furnish IAASA with those figures on an annual basis?

Mr. Kevin Prendergast:

There is a requirement at EU level to provide statistics on what they call temporary prohibitions or when entities are struck off the register on a temporary basis. For example, if I look at the occasions when IAASA has directly struck entities off, we have done that on foot of two of the investigations we have undertaken.

John Clendennen (Offaly, Fine Gael)
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Does that mean IAASA has bypassed the intermediary bodies to strike people off?

Mr. Kevin Prendergast:

As Ms Kennedy has indicated, a small number of firms are regulated by IAASA directly because they are the auditors of public interest entities. If any rises regarding that small number of firms, we have our own enforcement unit that carries out investigations-----

John Clendennen (Offaly, Fine Gael)
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How does a firm qualify for direct supervision?

Mr. Kevin Prendergast:

If you are an auditor of a public interest entity. A public interest entity is a listed entity, a bank or an insurance company. There are approximately 500 public interest entities-----

John Clendennen (Offaly, Fine Gael)
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That is significant.

Mr. Kevin Prendergast:

-----in the State and there are approximately eight audit firms at the moment that come directly under our remit. As I said, there were two instances where IAASA struck people off the register. I think for both cases they were struck off for a year. They are in the public domain-----

John Clendennen (Offaly, Fine Gael)
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On an annual basis, roughly speaking, how many people would be struck off the register from this practice or profession?

Mr. Kevin Prendergast:

I do not have those figures immediately to hand. They are available from the professional bodies. We do have them.

They are in our profile of the profession, which is one of documents that we issued very recently. I can get the Deputy that number in the next few minutes or definitely before the end of this meeting.

John Clendennen (Offaly, Fine Gael)
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We will not bother.

Mr. Kevin Prendergast:

It is not an enormous number. In fairness to the profession, a lot of the time what it tries to do is help members of the profession get right what it is they do. It would have to be a pretty significant issue before you would actually strike someone off, in fairness to the people who act in the profession.

John Clendennen (Offaly, Fine Gael)
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I appreciate that.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I thank the witnesses for their presentation. People may think this is a bland subject, but it is a subject that we have seen is critically important. That probably relates to my first question. Obviously, we had the Anglo Irish Bank situation, where EY was auditing and failed to report to protect Irish interests. What is different now in the banking system? Could we have another Anglo Irish Bank situation where an auditor would fail to report what they see?

Ms Aisling Kennedy:

The standards are continuing to evolve and become more onerous for auditors. It is important to recognise that we only supervise statutory audit. There are internal audit and internal controls within organisations that are beyond our remit but are also very important in ensuring the stability of organisations, not just financial organisations. We would all like to hope that a failure on that scale would not reoccur. I imagine, and Mr. Prendergast may amplify this, that if I were sitting in an audit firm, I would say there is always the possibility that information is not disclosed or is hidden from an audit firm. Is there anything Mr. Prendergast wishes to add to that? It is getting harder and harder to hide information from statutory auditors because they are looking deeper and deeper.

Mr. Kevin Prendergast:

Without getting into specifics, there were multifaceted failures across many different desks, so to speak, at the time. The single biggest difference now on this is that for anybody who is an auditor of a bank, as a bank is a public interest entity, we directly inspect it. Looking at the eight firms that we regulate, we are in them every year. We have teams in them pretty much permanently, as they would acknowledge, looking at both their firm-wide systems of quality management and a selection of their individual audits each year. We do that on a risk basis. From our point of view, as will be seen from the quality assurance reports we issue every year, we carry out pretty comprehensive reviews of the work they do. Broadly speaking, the results are, by international comparison, quite good in Ireland. We are definitely above the global average. Equally, and this will be seen from our reports but also from the enforcement actions we have taken, if there are issues, they get resolved promptly and effectively.

Ms Aisling Kennedy:

To draw out one of the things Mr. Prendergast has said, one of the things that has changed is the extent to which, within firms, there are now much more rigorous standards and review of the audit engagements of individual teams. The firms themselves have significantly ramped up. We are the next layer beyond that, but there are far more layers within the bigger audit firms-----

Rose Conway-Walsh (Mayo, Sinn Fein)
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There are protections.

Ms Aisling Kennedy:

-----that provide protection.

Rose Conway-Walsh (Mayo, Sinn Fein)
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The other question I want to ask is about companies operating outside the country, for example, the Carillion situation, where that company operated under UK audit oversight. That obviously cost millions upon millions. Contractors and subcontractors were deeply impacted by that, as well as employees of those companies. What do we have in place in that regard? What kind of collaboration do we have with the UK? Let us say a firm that is based somewhere else enters into a PPP or whatever with the Government, how do we know that the auditing has been done in those companies? Are there double-checks on the auditing from here before they are taken on or before they are given public contracts here?

Ms Aisling Kennedy:

I will let Mr. Prendergast take this one.

Mr. Kevin Prendergast:

It is important to recognise what the purpose of audit is. Audit is always an after-the-event review of the financial statements of the company, including its internal controls. An audit will look at things such as the business model and the risks associated with that business model. What it probably will not do, and maybe this is what the Senator is asking, is get involved before a business decision is taken. It will assess the risk to the business model, perhaps after a very significant decision is taken.

Rose Conway-Walsh (Mayo, Sinn Fein)
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Say proceedings have been taken or there has been a big fine in another jurisdiction, has IAASA any oversight of that? How does the Government then work in allocating projects for such firms? What protections are in place if an auditing firm is fined in another jurisdiction?

Mr. Kevin Prendergast:

It is probably outside our remit to decide how the Government assigns investment in infrastructure projects. When we are looking at an entity, and without getting into specifics, if that entity has been subject to a significant fine or significant criticism, which might have affected either its viability, the viability of its business model or its costs, then we would expect the auditors to have carried out a proper review of that. When we are doing our risk matrix every year, that is the basis on which we pick the individual audits within the firms that we regulate. Our risk matrix will have regard to events that may have occurred in respect of those entities. We expect the auditors to do their work and we oversee that. To the Deputy's particular question, that is really a matter for the people who take the decisions with regard to public infrastructure investment.

Rose Conway-Walsh (Mayo, Sinn Fein)
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How much collaboration does IAASA have with those who have oversight of auditors within other jurisdictions? Is there shared information?

Ms Aisling Kennedy:

As I mentioned, there is the International Forum of Independent Audit Regulators which meets regularly. In fact, Mr. Prendergast has just commenced a two-year term as chair of that international body, which is quite a prestigious appointment for a small country like Ireland to achieve. Perhaps Mr. Prendergast might speak a little to how IFIAR works and how it does that-----

Rose Conway-Walsh (Mayo, Sinn Fein)
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If we have really good standards here but they are not so good in another jurisdiction, does IAASA have another oversight of that?

Mr. Kevin Prendergast:

The way the world tends to work in this area is there is something called mutual reliance. Standards in auditing, for example, are global standards. They apply in every country that has applied those standards. As I said, we have something called mutual reliance, which means if, say, an overseas audit firm is carrying out an audit of an entity operating there, we place reliance on the local regulator to do its work and, in turn, it places reliance on us in Ireland to do our work. What we do at the international forum level is come together to do inspection workshops, training workshops and enforcement workshops, as well as information sharing. We host webinars and we have an annual plenary. We hosted the inspection workshop in Dublin last year. We had 150 people from all over the world and it was all about training and development. It is a mixture of global standards and global training to try to make sure we keep standards high.

Albert Dolan (Galway East, Fianna Fail)
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I thank Ms Kennedy and Mr. Prendergast for being here. I worked in a big four audit firm for three and a half years. I finished my training about two years ago and I am currently a member of Chartered Accountants Ireland. I really appreciate having the opportunity to engage with the witnesses. I know from my time in audit that an IAASA review is not something that any auditor or partner looks forward to, but it definitely shines a light on the importance of having stringent robust procedures to ensure that an audit can be executed efficiently.

Listening to the prior engagements, something that is in the audit industry is that audit expectation gap of what people think an audit means versus what it means in reality, or what is material and what is not. If the wider public realised sometimes what is considered immaterial in a larger structure, they would be surprised. Millions of euros could be considered immaterial. For the wider public, that may seem like a huge amount but in the perspective of a multibillion euro fund or entity it is minuscule. I really appreciate the witnesses being here and giving us this opportunity. What is IAASA's vision is for audit regulation over the next five to ten years in Ireland? We have a huge funds industry here, a huge audit function behind that and spin-off as a result of that. Where do the witnesses see audit regulation going in the next few years, particularly in light of EU reforms and, as they mentioned, the likes of Wirecard and other global audit failures? How does IAASA see its role there?

Ms Aisling Kennedy:

The Deputy makes a very important point. Mr. Prendergast mentioned the 500-odd public interest entities we have here in Ireland, which is in many ways disproportionate to the size of the country and reflects the fact that we have an international financial services industry here. That places a burden on IAASA, which, as we mentioned, has a relatively small team.

Regarding the future of regulation, we implement policy; we do not make policy. Obviously, we welcome the opportunity to contribute to policy development. As to implementing and the future of implementing audit regulation as we find it, this is why I placed such priority in my opening remarks on continuing to build organisational capability within IAASA. I think we can continue to expect an evolving regulatory environment. We may be in a period at the moment where there is a bit of a pullback in the context of prioritising competitiveness but that is a pendulum that may swing again. Even in the absence of policy change or without regulatory change, we have talked about the changing use of data analytics, of artificial intelligence, of the changing shape of the global economy and international trade, all of those things will bring change in financial reporting, sustainability reporting and then consequently in statutory audit and the supervision we provide. What is really vital for IAASA is that we stay ahead of that curve and maintain a culture of openness, learning and expertise.

Albert Dolan (Galway East, Fianna Fail)
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Is IAASA funded by its member groups or is it funded from the Exchequer?

Ms Aisling Kennedy:

It is a combination. We receive Exchequer funding but we also are funded through the profession.

Albert Dolan (Galway East, Fianna Fail)
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Does Ms Kennedy believe IAASA, in its current format, is fit for purpose? She makes a really valid point. I know the net asset value of entities that are audited here in Ireland is in the trillions of euro and there are 500 public interest entities. Does IAASA have adequate staffing and resources to effectively police the auditing of all these public interest entities or does Ms Kennedy have any concerns for the team?

Ms Aisling Kennedy:

As chair, I am in the very enviable position of having great confidence in the team we have. I know from wider engagement that it is a team that is thought of very highly in international forums. We have super experts. Regarding the size of the organisation, we are quite careful with the money we receive from our funders, the Exchequer and the accounting profession. To provide an example, when we were looking at the additional staff we would need to provide oversight of sustainability reporting, the board challenged Mr. Prendergast, as chief executive, as to whether he was bringing in enough additional people. I believe we are getting the balance right. It is obviously important we have the capability we need but it is equally important we spend our funds wisely. That will continue to be a watching brief for the board and the organisation. Mr. Prendergast may have something he would like to add to that.

Mr. Kevin Prendergast:

Just as regards the expertise we get, and reflecting on the Deputy's own career experience, a significant number of our hires are from the larger audit firms. They come to us. Typically, they are quite experienced when they come in. We have to make an offering. We are not going to match them from a financial point of view but what we offer is a sense of value and purpose in working in this space. I am gratified that we get really strong candidates. We have a very strong team. A lot of our recruitment now is effectively word of mouth. Once we have a vacancy, as the Deputy will know, it is a small area in terms of the larger firms so we are very lucky with the people we get to join us.

Albert Dolan (Galway East, Fianna Fail)
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I will make one last point because I am conscious of the time. It is good to hear that IAASA is hiring great people and that there is an attractiveness to the public service and the civil service. I have also worked in a smaller firm, a family practice, and I have seen how the audit makes up such a small portion of smaller accounting firms' businesses. An audit is a cumbersome exercise and you do have to adequately charge for your time. However, it is very difficult for the small to medium firms to compete with the economies of scale that the larger audit clients have. Then the smaller firms are also not able to access a lot of that audit work for fear of breaching those thresholds that would stop them from maintaining their independency, which is obviously really important. Are there any plans to support small to medium accounting firms? Does IAASA provide any guidance or support to smaller firms?

Ms Aisling Kennedy:

The short answer to that is it does but not directly. As we have talked about before, that would be mediated through the regulatory bodies. It is certainly an area of focus. Again, Mr. Prendergast may want to add something to that.

Mr. Kevin Prendergast:

Yes, it is a real problem. If we look at some of the statistics in our annual profile of the profession that we release every year, it tells that story. Small and medium practitioners are increasingly a declining number. If we look at the experience in the UK, which is probably a few years ahead of us, they reached a tipping point and the numbers declined significantly. What we have here in Ireland is other regulated sectors, such as the local credit unions and charities and things which require an audit. If we look at many small and medium practitioners, that is why they are maintaining their audit certificate. It is a difficult one. In the case of most of those, their direct relationship is with their professional body. In fairness to the provisional bodies, to their credit they work an awful lot with their small- and medium-sized practitioner groups to try to give whatever assistance they can but, going back to our initial point, there is an inevitability around the burden of doing high-quality audit and a cost applies.

Ms Aisling Kennedy:

I would see this in my own profession, the actuarial profession, in that statutory rules are consolidating into larger firms because of the depth of the expertise and the quality requirements that go with fulfilling those engagements. As Mr. Prendergast says, there is a direction of travel but there is plenty for smaller accounting firms to do. I was speaking to Mr. Prendergast earlier regarding a small charity-----

James O'Connor (Cork East, Fianna Fail)
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I will have to cut the responses off there as we have gone two minutes over.

Albert Dolan (Galway East, Fianna Fail)
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I appreciate it. I thank the witnesses.

Eoin Hayes (Dublin Bay South, Social Democrats)
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I thank Ms Kennedy and Mr. Prendergast for attending today. I really appreciate their time. I know it takes some time to even prepare for these sessions so I appreciate them doing that. I am also delighted to have people who are numerate before the committee. It is unusual that I am in a place where I am talking to witnesses who have such extensive numerary qualifications. I want to take this to some high level to start. When we think about the purpose of the accounting and auditing professions, the witnesses referred to public confidence. I would reframe it slightly. I think there is a public confidence thing, particularly for the public interest entities and for public entities as well, but there is also a question around competence for shareholders and investors. I have received some reports from foreign shareholders and foreign investors that they do not have a huge amount of confidence in the regulatory environment in Ireland and that has been why they have not invested here or have not done certain things here. Do the witnesses think we have given sufficient confidence to investors and shareholders in the regulatory environment in Ireland and does IAASA play a role in that?

Ms Aisling Kennedy:

The Deputy is right to say that when we talk about public confidence, key stakeholders in that are the investors and shareholders in large and listed entities. I believe the quality of oversight in Ireland is comparable with any other jurisdiction in which large investors might consider investing. I sometimes hear the counter-argument that Ireland is seen as a jurisdiction where there is too much regulation. As Mr. Prendergast said earlier, when you hear both those messages you feel you are getting the balance somewhat right. It is necessarily a matter for policy to decide what the strength of the regulatory environment needs to be. As we have already said, it is for IAASA to implement that regulation. In terms of international comparability, I am sure Mr. Prendergast will not say anything different. I do not know if there is anything he would like to add.

Mr. Kevin Prendergast:

My two points probably underscore those that Ms Kennedy made. First, at an international level when I talk to my peers we talk about public trust and confidence in capital markets. For many entities, our US colleagues in particular, that is what it is all about. On the second point, the regulatory environment is multifaceted. My view, based on our record, is that IAASA is strong in this area. I would be happy to have that discussion. When you hear a discussion about a wider regulatory environment, they are talking about lots of other things that are going on. I do not want to speak about other people's jobs, but I am confident about ours.

Eoin Hayes (Dublin Bay South, Social Democrats)
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I am new to understanding the regulatory area more generally, so I ask the witnesses to forgive me. I spent 15 years in the private sector, but mostly abroad. When they talk about the professional bodies regulating a lot of these members, what is the legal status of those professional bodies? Are they privately incorporated as separate legal entities? Are they public agencies? How do they legally function?

Mr. Kevin Prendergast:

The two bodies that oversee auditors are Chartered Accountants Ireland and the Association of Certified Chartered Accountants, ACCA. One of them was established by statute under Queen Victoria in the 1880s. The ACCA is also a UK body established under a similar model. They are somewhat ancient in terms of structure but are effectively member-run organisations. That is how they operate in practice. They have their councils and various committees. Ultimately, they are controlled by their members, but they are not companies.

Eoin Hayes (Dublin Bay South, Social Democrats)
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Am I right to say that outside of these public interest entities, the members who are dealing with every other private entity would be effectively self-regulating?

Mr. Kevin Prendergast:

I am sorry; in what terms is the Deputy talking?

Eoin Hayes (Dublin Bay South, Social Democrats)
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I am talking in terms of the strike-offs Deputy Clendennen spoke about. The witnesses said they had some direct oversight of the private interest entities, but otherwise the professional accounting bodies are responsible for censuring their members in the case of malpractice.

Mr. Kevin Prendergast:

We have a direct regulatory role for the auditors of the public interest entities. That is eight firms at the moment. There are 1,100 statutory audit firms in Ireland. All of those other audit firms are regulated by their professional bodies, of which there are two. IAASA oversees how that regulation is carried out. We have ultimate responsibility under the law for how that is carried out. We issue guidelines as to how we expect that to be carried out and then we carry out annual inspections into those bodies to make sure they are complying with our guidelines and the law and issue reports. If necessary, we would take regulatory action against them.

Eoin Hayes (Dublin Bay South, Social Democrats)
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Would that be typical in other countries as well? I know it would be for the UK, but what about the US, for example?

Mr. Kevin Prendergast:

It varies a lot based on history and on the law in each country. Historically, we had a profession here that invented itself and regulation came on top. In other countries you started with regulation. Some countries only have one professional body and that has been given regulatory powers. It really varies. With others, you go back into old European structures where you had one entity that ran a profession, like a guild. That suddenly became a regulator. In some cases, it never became a regulator. They are still in the private sector. It is a Pandora's box of different structures, but the Deputy is right that Ireland and the UK have broadly similar ones.

Eoin Hayes (Dublin Bay South, Social Democrats)
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It strikes me as a self-running guild in some ways. That can have its own advantages. That is not to say it is necessarily wrong. It is just to say that for somebody who has worked in the US for a long time, it seems unusual in terms of how you would think about regulation and a regulatory environment more generally with regard to standards for a professional organisation and professions.

That brings me to the next point, which is about accounting firms more generally. My personal experience during my college years was that a lot of people were going into the auditing and accounting firms. There are approximately 17,000 students under the different professional bodies. In my experience, pay and conditions have not been fantastic for those individuals. Partner pay and remuneration has been significant. That often seems at odds with my experience of other organisations in other jurisdictions. How does IAASA think about that and what its role and the regulatory environment's role should be in pay inequality or pay and conditions for those in the professional bodies?

Ms Aisling Kennedy:

In the first instance, the profession, as with any profession, needs to provide an overall package that attracts the quality of candidates into the profession that it needs. It is not something IAASA has within its remit. It would be a matter for policy were it to be part of our remit. There is evidence that the structure of the professional bodies and professions generally is changing and will continue to evolve. That apprenticeship model the Deputy mentioned, for example, is under pressure from the new ways of working post-Covid. We know that attractiveness of the profession is something the big firms and professional bodies are cognisant of. Mr. Prendergast may want to add to that.

Mr. Kevin Prendergast:

I will make two brief points. We try to drive improvements in audit qualities and national regulators. As part of the individual conversations I have with the largest firms, I meet the managing partners every year. We talk about the attractiveness of the profession and attracting and retaining quality staff. At global forum level, we have a schedule of emerging issues we discuss as global regulators. One of those is the attractiveness of the profession. If you do not get good people in and keep them, that is going to impact on audit quality. In fairness to the profession, we know it is also trying to address this. The profession realises the old model, as Ms Kennedy referred to it, just does not sell in the current environment.

James O'Connor (Cork East, Fianna Fail)
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I thank Ms Kennedy and Mr. Prendergast for their contributions. I apologise, Deputy Conway-Walsh wishes to come in.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I have a brief question about the separation with the big four. It is obviously the big four we are talking about in the main. It is specifically about the approach we have here in terms of the ethical wall. There is no enforced structural split, but the UK and some other jurisdictions are considering a mandatory split. Is that something we should be considering here?

Mr. Kevin Prendergast:

I will try to be brief on what is a decidedly non-brief topic. What has happened in the UK is that they have done what is called operational separation. They have not split the firms, but require them to do separate income reporting, so you can identity whether audit is making a profit and other entities are not. This comes back to the discussion about having the multidisciplinary model, which is whether you have a firm that is audit only or provides other services. One area that has more recently brought that into focus, which I know the Deputy has looked at, is the new corporate sustainability reporting directive. If an audit firm wants to provide assurance on that, it needs a multiplicity of skills. That is one argument in favour of the multidisciplinary model. Against that, that model provides challenges in the area of independence. Deputy Dolan referred to there being legislation on providing non-audit work. There are limits to the amount of money that can be made from non-audit work, which tries to copper-fasten that.

Rose Conway-Walsh (Mayo, Sinn Fein)
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I do not want to take up the Chair's time or that of anybody else on the committee. Do the witnesses think we should be following the UK in the same way with a mandatory split?

Ms Aisling Kennedy:

It is a very complex issue. It is a policy matter and we will contribute to any discussion on it, but it is not an open-and-shut situation in that it does not have a "Yes" or a "No" answer.

Rose Conway-Walsh (Mayo, Sinn Fein)
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Okay, so it is on the table but we have not pursued it.

Paul Gogarty (Dublin Mid West, Independent)
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I congratulate Ms Kennedy on her new role and I thank her for the presentation. I was here for it but then I had to go to the Chamber. I will try not to repeat questions that others have asked. I checked with my colleague and not too much has been asked about the AI side of things, so that is where I will focus. I noticed a piece in the Journal of Accountancy, which is US based. It did a survey of attitudes to AI among audit teams. Almost a quarter of the respondents cited a lack of training and infrastructure. Some 17% said that the technology was too expensive or no use and another 13% cited inability to access usable client data. There are a lot of benefits. Mr. Prendergast mentioned that for the larger companies, there should not necessarily be a need to utilise AI, to a certain degree. From my reading I can see that there are benefits. The Journal of Accountancy article states, "... it helps the auditor more appropriately refine the scope and planning of the audit, to focus on procedures that are more responsive to actual risk ..." It can go deeper into datasets. In that context, we have to acknowledge that there are real benefits to AI. Have the witnesses noticed any pitfalls to AI? I would argue that smaller companies might be more likely to try a more basic version, to see if they can get more efficient and that is where the pitfalls might be, because the checks and balances might not be in place. Have the witnesses seen situations where companies have started using AI and while it looks fine and they have tested it a few times, there is actually gibberish underneath? Does the authority issue guidelines to them? When it is conducting its audits, does it ask companies a specific question about whether they use AI and if they do, what have they been using? In that context, does the authority have any educational role aside from the enforcement role?

Ms Aisling Kennedy:

There is very little use of AI yet in the accounting profession or in professional bodies, generally. There is a lot of talk but we are really only beginning to see the use of data analytics, which is a good step behind AI. We very much have a watching brief over the area. The key point to make is that using either data analytics or artificial intelligence is not a substitute for the quality of the procedures that auditors are obliged to undertake and nor will it be, in any way, a shortcut for the oversight provided either by the regulatory bodies or IAASA. People will need to be able to demonstrate their homework, and that is one of the challenges that exists in leveraging AI.

Mr. Prendergast may have more to add on this point. There is merit in it for large entities at the moment. Audit can only work on a sample basis and auditors will always try to choose their samples on a risk basis, but in the long run, it should be possible to test right across the datasets from the large companies. This should be an improvement but, as the Deputy says, there are potential pitfalls as well. We will certainly be keeping a very close eye on what emerges.

Mr. Kevin Prendergast:

If the Deputy has an interest in this, and I hope he does, IFIAR, the global body, recently issued a report from its technology task force on the use of technology, including AI. The report very much supports Ms Kennedy's comment that there is a lot of talk, but the level of actual use is probably not really up there yet. The investments are enormous, with billion-dollar sums being invested by the largest firms. It is interesting when we talk to them because the thinking is quite advanced. For example, they do a lot of talking about ethical rules and guidelines on the use of AI, in order to make sure that it does work properly. The Journal of Accountancy is an excellent publication on this issue. The Deputy pulled out one of the nitty-gritty points about useable client data. There could be a wonderful system that says it will look at every single transaction that is sent in and ten seconds later a result will be produced. Almost invariably, one cannot get the datasets to talk to each other and get them all on to one system. There are a lot of real-world, practical challenges to making AI work. That said, the potential upside is very high.

The key point is transparency, so that everybody knows where AI is being used, because the risks change. A junior employee who may not have much experience is one set of risks but AI doing a huge amount of work is a completely different set of risks. As global regulators, the other thing we are looking at is how we change our inspection regime to ensure that we are taking account of those particular risks, and we are very much at the beginning of that.

Paul Gogarty (Dublin Mid West, Independent)
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Regarding how this is being talked about more and more, I presume that in the training for actuaries right now, it is being integrated. In that context, the risks are coming from the people coming up. It is a bit like second-level students using AI to come up with an answer but they cannot show how they came up with the answer. Obviously, there will be checks and balances. The job of IAASA is to scrutinise the five accountancy bodies. How does that relate to third level institutions? Does IAASA have any role in monitoring those as well? Are they partner members or how does it work?

Ms Aisling Kennedy:

We are very lucky to have a senior academic from Queen's University on our board. We talk to her about how the educational environment is evolving and responding but other than that I will allow Mr. Prendergast back in.

Mr. Kevin Prendergast:

We do not have a direct responsibility to work with third level institutions. The law requires that certain things be covered in education. However, on a soft basis, we actually work with them quite closely. There is a group for Irish academics in accounting called the Irish Accounting and Finance Association, IAFA. We have jointly hosted conferences with this body and we recently introduced a bursary to fund research into the area of audit. We are trying to improve the connections there. Recently, I spoke at a European conference on accountancy and training. We are very much at the foothills of AI in trying to figure out how we build this into education and training. We get into all sorts of interesting topics such as how to develop critical thinking and rounded thinking, rather than relying on the technology. There are a lot of challenges here but ultimately, we should get better people, getting more informed decisions, based on better data. That is the hope and there is a lot of work for all of us on that.

James O'Connor (Cork East, Fianna Fail)
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I thank the witnesses. We will now suspend for five minutes and then resume in private session.