Jan O'Sullivan (Limerick City, Labour) | Oireachtas source

In welcoming this legislation I thank the Oireachtas Library and Research Service because I needed its guidance and data to understand a lot of the technicalities. It is a long Bill with much technical detail in it. The overall purpose of the Bill is very important and I very much welcome it, along with the EU audit package on which the Bill is based. Some of the measures are already in place but the Bill, while consolidating the legislation, also brings in new measures.

In some ways this is closing the door after the horse has bolted because of the failures that led to the economic collapse and the fact that we did not have appropriate oversight and regulation at that time. There was a very cosy relationship between the former office of the Financial Regulator and the big banks and lenders. The issue concerning the ODCE has already been raised by previous speakers and I support their calls for the need to beef up that office. I also agree with the other comments with regard to the collapse of the trial of prominent bankers.

It is important to make the point that this kind of regulation is welcome, in this case in respect of the auditing of large companies and especially the financial institutions. I wonder, however, if we had had more of this oversight in the past, whether it would have saved us from the economics collapse and the effect it had on the State and the people. We need transparency and really good auditing, particularly for the kinds of bodies to be covered by this legislation.

In the briefing paper provided to Members and commissioned by the Oireachtas Library and Research Service I found the list of stakeholders in the appendix very interesting. They are certainly big beasts and the list includes the Central Bank of Ireland, Chartered Accountants Ireland and the Chartered Accountants Regulatory Board, the Institute of Certified Public Accountants in Ireland, the Association of Chartered Certified Accountants, PwC, KPMG, EY, Deloitte, Mazars, the Irish Stock Exchange, the Irish Funds Industry Association, BlackRock, Banking & Payments Federation Ireland, Smurfit Kappa , Aer Lingus, the Irish Tax Institute and the Revenue Commissioners. Between them all there is a lot of money involved in their kinds of business. This legislation is really important, therefore, in ensuring that there is absolutely proper financial regulation. The stakeholders' comments are included on the various elements we are discussing today. In considering the reasons for reform of the rules governing statutory audits, the briefing document states:

The new rules address a number of shortcomings observed in respect of audit practices:

- Deficiencies, and in some instances misstatements, in audit reports have been observed by the competent authorities of Member States.

- Doubts have emerged among investors on the credibility and reliability of the audited financial statements of banks, other financial institutions and listed companies, as highlighted by the economic and financial crisis. It is understood that this has limited the ability of investors to rely, with confidence, on reports of statutory auditors.

This reference to investors and stakeholders is interesting because I believe the public and public representatives also need this level of transparency. These issues should not just be the preserve of a certain elite that understands the language and some of the loopholes that existed in the past. The briefing document also notes "An excessive familiarity between the management of a company and its audit firm, risks of conflicts of interest, and threats to the independence of statutory auditors can challenge the ability of statutory auditors to exert thorough professional scepticism." We need to ensure there is thorough professional scepticism when it comes to auditing companies, especially of those who control a lot of money.

The briefing document also notes "[a] lack of choice of audit firms emanating from high concentration levels in the top-end of the audit market". Again, this is about not just having a small number of bodies that basically control the market. Effectively, that is not competitive. It can also mean that these small number of bodies control the kind of auditing that is done. The briefing document further notes "[a] systemic risk as the audit market is effectively dominated at the top end by four networks". I think that would be worrying to any of us. Therefore, it is welcome that this is being addressed.

I had to go to the glossary a few times to understand all the terms, for example, IAASA and PIE. PIEs are public interest entities. These are of "significant public interest because of their business, their size, their number of employees or their corporate status being such that they have a wide range of stakeholders". Obviously, they are of public interest and, therefore, I think the public interest is paramount in all of this. It is not just about restoring investor confidence; it is also about restoring public confidence.

The briefing document notes:

The main objectives of the reform are to:- ensure further transparency in respect of the financial information of companies;

- provide statutory auditors with a strong mandate to be independent and exert professional scepticism;

- contribute to a more dynamic audit market in the EU; and

- improve the supervision of statutory auditors and the coordination of audit supervision by competent authorities in the EU.

All of that is very important.

To refer to the issue raised by the previous two Deputies around SMEs and the audit exemptions and extensions relating to late filing, etc., a balance is needed between the burden on small business and the requirement to have oversight and good governance. We need to get that balance right. I have not been lobbied by small businesses, as others have, but I am willing to listen to them. However, it is important that we get the balance right and that we ensure good governance and proper oversight in all companies. As others will be proposing amendments, I assume we will be returning to the issue at a later stage.

Under the theme of independence and objectivity, the briefing document states:

The Audit Directive notes some of the threats to independence as being:- self-review, self-interest and advocacy;

- financial, personal, employment, business or other relationships with the audited entity;

- holding a material and direct beneficial interest or engaging in any transaction with financial instruments of the audited entity (except interests owned indirectly through diversified collective investment schemes);

- acceptance of gifts with a value higher than considered trivial or inconsequential;

- acquisition by merger with or acquisition of the audited entity by another entity which results in interests or relationships which may compromise the independence after the effective date of the merger or acquisition.

As public representatives, it is important that we, first, have some grasp of this and, second, ensure that we hold bodies such as IAASA, which is the body that will be over all of this, to account and ensure that they have the necessary powers and strengths to carry out their work. The briefing document states that the policy implications will require that "audit reports [are] more detailed and informative and their work will be more closely monitored with strengthened audit committees". That relates to public audit reporting.

This probably will not get a large amount of public attention but it is very important. As I say, I am not too sure to what extent the public will be watching. However, when one reads the list of stakeholders at the back of the briefing document, people with power and money and influence will be watching. It is, therefore, important that we as public representatives represent the public interest in this regard.

I welcome the Bill. We will be supporting it and I look forward to further debate.

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