Joe O'Toole (Independent)

I welcome the Minister of State and the heavy-hitting advisers he has behind him. I know well their expertise in this area and I have discussed and argued issues with them over many years. I must declare an interest as a member of the Irish Auditing and Accounting Supervisory Authority. This is an issue of great interest to me. The question of standards in accounting and auditing has to do with trust and confidence. It is a simple issue of people being able to trust the figures they see, the names written at the bottom and the regulation in place. In this regard the Bill is welcome and necessary.

After listening to the Minister of State's speech and going through it in great detail I had to sit down outside and take a rest. A line in it states, "The likely date of publication of the companies consolidation and reform Bill is September 2010". I know the Tánaiste would never lie or deliberately mislead the House but on her previous occasion here when debating the Companies (Amendment) Bill I had tabled a number of amendments to that Bill, supported by Fine Gael and the Labour Party, on matters about which we felt very strongly. We argued intensely until, with her most beguiling of smiles, the Tánaiste stated she could not accept the amendments on that occasion but that she could deal with the issue in the company law consolidation and reform Bill, which was in its final stages and would be with us by next spring. Now, I see it will be published six months after that.

This may not seem an important issue but on that occasion I made the point that the previous occasion we amended the Companies Acts was in 1990 and it took two years to get that legislation through the Houses. In fact, it took so long that one section had to be taken on its own to deal with a crisis in the meat industry. I am not making this point to be critical of the section of the Department that deals with this but because it is important. Let us put on hold what is in the Bill and consider the entire area of regulation. The most recent important matter to issue from Europe on this is the famous eighth directive on accounting and auditing standards and the quality assurance that goes with it. Accounting and auditing are about quality assurance and nothing else. We are one of the last countries to transpose this directive. I do not want to embarrass the Minister of State or the country - it is not good for us to do so - but it is an embarrassment whatever way we look at it. We are way behind on the quality assurance that is required in accounting standards.

To take this matter further let us consider how it works. Much reference has been made to the Securities and Exchange Commission. I might not be too enthusiastic about it but I do not object in any way to us having an intervening period in which United States based companies will be allowed to stick with US standards. What I do have a problem with is that the US has been so reluctant to buy into international standards for as long as we remember. It is only in the past two months, as was pointed out by Senator Donohoe, that they are moving to international standards. This is a major win for Europe.

I will now consider how this works in reverse and how it is policed in other countries. In other counties, a check is carried out. The supervisory authority in countries with many companies based there, such as the UK, France, Germany, Italy, Spain and Luxemburg in particular, visits companies and checks standards to ensure they are complying with the applicable US, Irish or GB GAAP, or the international standards. This happens in every country except Ireland. Despite all that has happened over the past two years, the people checking how this is implemented are in the accountancy bodies themselves. This creates a difficulty because the Department will encourage many Irish companies to register in places such as Japan or other countries where we are trying to build up industry. This means those countries must have trust and confidence in our system.

Around the world, checking accountancy and auditing standards is done by an independent State oversight body or supervisory authority. In Ireland, it is done by the accountancy professional bodies themselves. That is a mistake. Those of us who are aware of this feel it is completely wrong and we have been speaking to the Department about it for years. It should be changed. I honestly believe the accountancy bodies, which are very important and have much influence, have managed to influence the Department because they have been working with it for the past 100 years, since before the foundation of the State, and they are listened to more than other groups. It is a mistake and we will pay a price for it somewhere along the way. I could write the advice being given to the Minister of State because I know exactly what the answers are but there is no answer to the general principle that supervision of accountancy standards should be done by the State.

The Bill quite rightly raises the limits to which people must contribute and I welcome this. Let us apply it to the Irish situation. In the past week, two or three questions have been raised on investigations into various banks and heads of banks in the news - they need not be mentioned. The oversight body has a choice under the Companies (Auditing and Accounting) Act 2003. It can insist that the accountancy bodies themselves conduct the investigation into whether members of a company fulfilled their obligations. This is different to the checking of standards that I mentioned earlier. The supervisory authority has an oversight role to ensure it is done properly. However, the legislation also allows the oversight body to investigate a body such as Anglo Irish Bank. As was indicated, these investigations can cost millions of euro. There is no money available in Ireland to conduct them. I have listened to the debates in these Houses and among commentators regarding why this area is not being investigated. One of the reasons is that section 3 of the Bill, welcome though it is, would not be available if the Irish Auditing and Accounting Supervisory Authority, which is the body appointed by the Minister, chose to act by itself. I am not saying the Department would refuse to act but that it would not want to provide the money. It would only be due to public embarrassment that it would act. If Anglo Irish Bank was a UK institution, that country's Financial Services Authority would investigate and the cost would be carried by the accounting bodies. In Ireland only 60% of the cost of the Irish Auditing and Accounting Supervisory Authority is covered by the accounting bodies but this does not include the matters to which I refer. This is an important issue in terms of trust and confidence.

Senator Coghlan and I have on many occasions raised the issue of protecting the term "accountant". The matter has been considered by the Department and the company law review group. Everybody agrees it should be protected and we have at least progressed beyond the silly arguments about not putting bookies out of business by confusing the term with "turf accountant". The term "accountant" remains open to abuse, however. Anybody can put up a doorplate claiming he or she is an accountant and there is nothing we can do to stop it. Such people would not be entitled to conduct audits but they could present themselves as accountants to an unsuspecting public.

I ask the Minister of State to outline the difference between the approaches taken in the US and Europe in regard to accounting standards. The legislation introduced in the US in the aftermath of the Enron affair is called the Sarbane-Oxley Act. That Act provides for prison terms to be imposed on the chief financial officer of a company. However, the weakness of the American system is that it is rules based. If an issue is not covered by a rule, the system is silent on it. In many cases, the reports produced under rules based systems are meaningless. It is preferable to have a principles based approach which tells people to act honestly and prudentially.

In an ideal world, there would be no need for company law. In the middle ages, shopkeepers were hung if they did not behave honestly and prudentially. As that came to be considered somewhat barbarous, more polite concepts such as limited liability were introduced. These were seen as democratic gifts which would allow business people to pursue opportunities and take reasonable risks. The key concept was reasonableness. I recall a time when exchanges in the stock markets were conducted on the basis of a nod and a handshake. That no longer happens because of the question of trust.

I welcome the Bill for its aspirations towards trust and confidence but wider issues need to be considered. One such issue is amending the Companies Acts to require that directors issue a compliance statement that to the best of their knowledge they are presenting a fair and accurate reflection of their companies' accounts. The Minister previously stated this matter was best provided for in the forthcoming company law consolidation and reform Bill. This was recommended by the audit review group, which I chaired in 2002, but it seemed to put a bomb under accounting and business professionals. They asked how anyone could dare to make such a demand of company directors. However, any reasonable person would consider it an appropriate requirement.

I commend the Minister of State's officials, who are hardworking and highly knowledgeable about this area. Although I argue with them regularly, I would not gainsay their contribution to companies legislation. I wish them well in their efforts on the company law consolidation and reform Bill. I have given out about delays to that Bill but I do not wish it to be rushed.