Sean Barrett (Independent) | Oireachtas source

I move amendment No. 11:

In page 10, between lines 35 and 36, to insert the following:“(9) The Recognised Accountancy Bodies remain the oversight bodies for the external quality assurance of audits until the enactment of this Act and shall retain the duties and obligations of such oversight up to and including that date.”.

I have the greatest concerns about this section. I call on the House to reflect on what we have faced since we have come here and since Ireland has been in the financial straits in which it has found itself and which we are trying to sort out now.

The average citizen has borne extreme burdens. Unemployment and emigration have increased and so on. Many of those directly culpable have borne none of the cost of what happened to put the country on the rocks, and they include bankers, accountants and the regulators of banks.

This is why I am concerned about section 6. The briefing note says the provision allows for a levy on statutory auditors and audit firms of public interest entities to defray the costs of the Irish Auditing and Accounting Supervisory Authority, IAASA, in carrying out the functions of external quality assurance in respect of these public interest entities. This will enable the IAASA to impose a levy on relevant statutory auditors and on audit firms to defray the cost of carrying out the quality insurance function which, it is proposed, will be transferred from the recognised accountancy bodies to the IAASA.

In this section, as I understand it, we are transferring the responsibility for the conduct of accountants from the bodies themselves to a State body. The hope is that we will be able to defray the costs. I view this with extreme concern because I regard the accountants and the bankers as the key people who got us into this situation. Where they presented accounts which the Government found out subsequently were not a fair and accurate reflection of the affairs of the banks - which we took over at a cost of €64 billion - there should be no question that the costs are borne in any way by the State.

Our function in all parts of the House should be to get better conduct from our auditors. They failed miserably and I will present evidence on that presently. They did disastrous damage to the country but now they seem to have successfully lobbied to push that function onto a State organisation which, according to its annual report, has 14 staff and permission for 15. There are only 14 staff to assess 28,000 accountants and 19,000 trainee accountants.

The people who got us into this should bear the cost of getting us out. Moreover, this should happen in the legal profession with other cases of white-collar crime and there should be no question that anyone else other than that profession should bear the burden. At the very least, serious discussions are needed about the role of accountants in the collapsing of the Irish economy in the first instance - I will present something on that presently - and second, on the reason the taxpayer is involved at all at this point, because it is the taxpayer who funds the Irish Auditing and Accounting Supervisory Authority, IAASA. The explanatory memorandum states that 11 additional staff might be needed to do this, which will be a cost. I acknowledge this may be recouped from the accountancy firms but the record in the field is not the greatest. If the State takes on this function, as proposed in section 6, I am sure it will be a godsend to the lawyers. They will from henceforth suggest that instead of suing the accountant who gave one the wrong advice, one should sue the State, which I note has a debt-to-GDP ratio of 124%. Consequently, to those who have been wrongly and badly treated by accountants, the State will become a far bigger mark than taking on the accountants themselves.

A serious discussion is required on the reason the profession of accountancy has moved itself away from being responsible for its own regulation and for its conduct and the reason this in any way should become a burden on taxpayers, who already have borne enough in this regard. I refer to page 142 of the current edition of Phoenixmagazine in which it is noted that Mr. Paul Coulson won a phenomenal €44 million award from SG Warburg, which was blamed for walking Yeoman into the disastrous CLF Holdings takeover in the first place. In fact, he topped it up and the magazine estimates he eventually got approximately €87 million out of SG Warburg, which is far short of our €64 billion.

The reports of the IAASA reveal there have been problems with the manner in which that sector has been regulated and I want them sorted out by the accountants themselves long before they get themselves on the public payroll. In respect of the attempt by the IAASA to investigate such people, I note that on page 24 of its 2011 report, with which Members are familiar from dealing with health insurance, the information is redacted or blanked out. That is not very accountable as to what is going on. Similarly, on page 23, in a table entitled, Summary of Section 23 Enquiry activity - 2011, one sees "Redacted Text" in the middle of it. In the case of the conduct of Ernst & Young in respect of the Anglo Irish Bank case, the matter investigated was described as follows:

Failure to detect the scale of Mr. Sean FitzPatrick’s loans and their systematic refinancing over year ends and the lack of appropriate disclosure in the first set of Anglo’s Financial Statements for the year end 30th September 2008, which were signed on 2nd December 2008, or in Ernst & Young’s audit report thereon. The conclusion of the special investigator was "Prima faciecase found".

The next matter to be investigated was, "Failure to refer to the transactions in September 2008 between [Irish Life & Permanent] and Anglo in their audit report on the first set of Anglo’s 2008 Financial Statements, in the absence of appropriate disclosure in those 2008 Financial [accounts]", and the conclusion of the special investigator was "Prima faciecase found". As for the investigation into the "Failure to ensure appropriate disclosure of a loan made to Mr. William McAteer, a Director of Anglo, in the first set of Anglo’s 2008 Financial Statements or in their audit report thereon", the conclusion of the special investigator was "Prima faciecase found".

This is an area of malpractice from top to bottom with vast amounts of money. If one turns to page 27 of the annual report for 2011 one finds that under investigation are PricewaterhouseCoopers in respect of the accounts of Bank of Ireland and Ernst & Young in respect of the accounts of EBS Building Society and Anglo Irish Bank Corporation plc, which were audited by that firm. Moreover, KPMG were the auditors for Allied Irish Banks plc, Irish Life & Permanent plc, Postbank Ireland Limited and the Irish Nationwide Building Society. Although there have been no penalties on any of those, through section 6 we are getting the State involved with that kind of track record.

This is not a case of Members on the side of the House making a political point. Society needs much tougher regulation of the accountancy firms and as Senator O'Donovan observed about the law firms, it was the major accounting firms that got us into this. They appear to me to be a strange set of people to take into public scrutiny when one could follow the example of Mr. Coulson and force them to regulate themselves and force them to compensate people who have suffered so disastrously from the low standards of accounting that pertained in Ireland.

Since making the annual report of 2008, Karen Erwin, who was then the chairman of IAASA, has stated she is extremely concerned about the loss of confidence in Ireland in both the accountancy profession and in auditing. I do not believe this problem will be solved by taking it over as it is. We have a very serious problem in this regard and in her statement in the 2008 annual report, the then chairperson stated:

The confluence of these factors has significantly increased the risks associated with the preparation of statutory financial reports and, by extension, the risks associated with the audit of those financial statements. These increased risk levels, in turn, significantly increase the risk of serious and lasting damage to public confidence in statutory financial reporting and in the accountancy profession.

That is what she said in 2008 and I discern very little progress by the same body up to 2012 in its annual reports.

While I acknowledge there have been many changes at board level in that authority, are we leaving the State wide open if it takes on the responsibility, as happened with pyrite? The State did not build pyrite in houses - builders did - but because the State was in some way engaged in the planning process to approve such building, the Minister of State, the Deputies and everyone in Leinster House were obliged to vote through money in the recent budget to repair the damage. I would be interested in hearing the views of the Ministers, Deputies Noonan and Shatter, in this regard but I would much prefer that the blame for the accounting failures in Ireland be put squarely on the accountants and not to have the possibility the State would be liable either for their costs of administration or for any damages that might result were these cases to ever reach a conclusion that the authority has here.

Ireland needs something like the Sarbanes-Oxley Act in the United States, which provides for a five-member board - we have 14 members - that has a commitment to the interests of investors and the public. Our accountants have no commitment to that because they destroyed the shareholders in the Irish banks and cost the public €64 billion. Section 104 of the aforementioned Act provides for annual inspections for each registered accounting firm with more than 100 issuers - which I believe means 100 customers. I do not believe it is possible to do that either with 14 staff members or with an additional 11 staff members as promised in the explanatory memorandum.

On the power to suspend, as far as I can ascertain no one has been suspended in Irish accountancy since 2008. While the Act provides for $15 million in fines, the highest fine imposed in Ireland that I have been able to find was one of €100,000, for failure to comply with the High Court case and the Institute of Chartered Accountants in Ireland. The legislation also provides for prohibitions on insider trading and a prohibition on personal loans to executives.

That has been at the kernel of how the banking culture in Ireland changed from the responsible approach which I would have known as a younger man to the irresponsible conduct during the Celtic tiger period. There were commitments to honest and ethical conduct. In the US, the budget for 2003 was $776 million. The other issue it is investigating, which pertains to the point made by Senator Denis O'Donovan earlier, is that an authority in charge of accounting should investigate limited competition in accounting. Rather than give consolation in section 6, now it is to be addressed on Report Stage, the entire House should unite and demand a much sterner deal in remedying what happened in 2008 and in getting some remedies for a public which feels very sore about this issue.

It is now five years later and nothing has happened. I could read into the record some of the findings against the accountancy bodies by the authority. So far as I can see they successfully sold the Government a pup to have this measure included. When we have major disasters involving the Irish banking and accounting system all the talk about the free market and laissez faire is quickly forgotten. This is a huge moral hazard problem. Laissez faire is all well and good until something goes wrong as stated by John Gutfreund, the former chief executive of Solomon Brothers. There is regulatory capture here. It is unpunished white collar crime. In regard to nationalising it, I advise the Government not to go near it, make them tidy up their own mess and if the solicitors come in next week looking for their misconduct to be nationalised as well, I advise it not to do that either.

We have to take a far sterner view of what accountants did in this country. I mentioned a fine of €100,000 and there was one in 2009. The Institute of Chartered Accountants was ordered to pay €11,325 to the authority within 14 days of the High Court making an order. There was a complaint by the then Senator Shane Ross and others to the Institute of Chartered Accountants and the fine in that case was €15,000. Why is the taxpayer being asked to take up this burden? What they want from us, as members of Parliament, is that we put the burden firmly back on the accountants and that they pay up, and pay up soon, as we are now in the fifth year since this was done. The major firms, which are read into the record, which are in the authority's reports are still not answering the questions about how they found banks to be much more profitable than the unfortunate Ministers for Finance. We have a duty to protect the taxpayers against any recurrence of that. At least it should not appear as an amendment of section 6 to the Companies Act that the Government should prepare full legislation on how it intends to regulate accountants, emulate the Americans as in Sarbanes-Oxley, and address a problem between the banks and the builders. As the Minister of State is aware from his constituency in Cork, they have driven this country to the wall and the implications for us of taking on the responsibility for regulating that sector are huge.

I will deal with the individual amendments but if the advice from the Department is that we have to do this, I ask the Minister of State to ensure that everything that happened, until Uachtaráin na hÉireann signs this Bill, remains the responsibility of the accountancy profession and, in particular, the big firms. They seem to have managed to evade the present system successfully and I fear they see us in this House as a soft touch and that they can continue to evade it.

The international implications of having accountants who are not accountable are huge and the burdens on the Irish people have also been huge. Ideally, the Cabinet should reflect on section 6 and work out with all the Members what is the appropriate response to having been seriously misled by the accountancy profession in regard to financial institutions and, perhaps, to call in Mr. Paul Coulsom, whom I quoted earlier. If he extracted €87 million from his advisers in transactions, maybe it is time the Irish taxpayer got a fair deal on this.

I am mystified as to how section 6 got into this. Presumably, the accountants think it is urgent - I appreciate what the Minister of State said that the entire Companies Act will be enacted in time. We need to know from the Minister for Justice and Equality, Deputy Alan Shatter, why the present penalties are not working, why the present procedures are far too slow and why nothing has been done to recompense the rest of the economy for what happened in Irish banking and accounting in 2008.