Seán Sherlock (Cork East, Labour) | Oireachtas source

I do not believe anybody in the House disagrees with the spirit of the submission made by the Senators. All of us agree there was a malaise and a morass regarding auditing and accountancy in a particular period but in dealing with the specific amendments I must be cognisant of whether they are applicable to the legislation before us and I would say that the last amendment was certainly not.

On this amendment, notwithstanding the robust case made by Senator Barrett which is a commentary on the lack of robust auditing and accountancy proceedings, the case we would make is that it is unnecessary and I do not propose to accept it for the following reason. Under section 22 of the Companies (Auditing and Accounting) Act 2003, not later than four months after the end of each financial year, the Irish Auditing and Accounting Supervisory Authority, IAASA, must make a written report to the Minister of its activities during that year. The report must be prepared in such a manner and form as the Minister may direct. The Minister shall ensure that a copy of the annual report is laid before each House of the Oireachtas not later than six months after the end of the financial year to which it refers.

Additionally, under section 22(4), the chief executive officer and the chairperson of the Irish Auditing and Accounting Supervisory Authority shall give evidence to the Committee of Public Accounts, when required to do so, on the following matters: the regulatory and propriety of transactions recorded or to be recorded in its accounts; the Irish Auditing and Accounting Supervisory Authority's economy and efficiency in using its resources; the systems, procedures and practices used by the Irish Auditing and Accounting Supervisory Authority for evaluating the effectiveness of its operations; and any matter affecting the Irish Auditing and Accounting Supervisory Authority that is referred to in a special report of the Comptroller and Auditor General. Whenever requested to do so by any other committee appointed by either House of the Oireachtas or appointed jointly by both Houses, the chief executive officer and chairperson of the Irish Auditing and Accounting Supervisory Authority shall account to the committee for the performance of the functions and the exercise of the powers of the Irish Auditing and Accounting Supervisory Authority.

The provision relating to quality assurance in the Bill is strictly confined to empowering the IAASA to impose a levy on statutory auditors and audit firms of public interest entities to defray the costs to it for carrying out the functions of external quality assurance in respect of those public interest entities. Additional functions relating to the European Union recommendation on external quality assurance are proposed to be conferred on the IAASA in the Companies Bill 2012 while the balance of the related functions will be conferred to IAASA by amendment to existing regulations.

An additional requirement will be that the IAASA reports annually on the overall results of the quality assurance system. Quality assurance is the regular inspection of statutory auditors and audit firms to ensure that systems are in place that will allow for consistently high quality audits. It is important to distinguish between the audit process itself and the quality assurance function. An audit is an independent examination of the financial statement - what used to be referred to simply as "accounts" - of a company or other entity which results in the expression of an opinion by the auditor on whether the financial statements have been prepared, in all material respects, in accordance with an applicable reporting framework and on whether the financial statements give a true and fair view of the profit or loss for the financial year, and the financial position at the end of the financial year.

In Ireland, audits are conducted in accordance with international standards on auditing, that is, both for the United Kingdom and Ireland. International standards on auditing are issued by the International Auditing and Assurance Standards Board. The UK and Irish version, reflecting a small number of modifications, is issued by the Financial Reporting Council.

An audit opinion relates to the results of a specified period and the position as at a specific historic date. It does not constitute an opinion on the financial health of the company in question nor is it nor can it ever be a promise or guarantee of the future viability of the entity.

Quality assurance is the regular inspection of statutory auditors and audit firms to ensure that systems are in place that will allow for consistently high quality audits. The scope of inspections includes an assessment of auditors' compliance with applicable auditing standards and independence requirements, a review of the internal quality control system of the audit firm and the testing of selected audit files.

The proposed transfer of the quality assurance function from the recognised accountancy bodies to the IAASA in respect of the audit of public interest entities is in line with best international practice. For example, the United States has such a system under the Sarbanes-Oxley Act, to which Senator Barrett referred on Committee Stage, as have Canada, Japan and Australia.

Within the European Union at least six member states have moved to this independent quality assurance system, including the United Kingdom, Germany and France, and smaller ones such as Belgium and the Netherlands. This system is acknowledged as the best way of ensuring the necessary independence of the quality assurance process.

A system where the professional bodies execute the quality assurance function on its member auditors and audit firms of public interest entities is considered to lack the requisite degree of independence. In the EU new legislative proposals on audit are currently at an advanced stage of consideration and these proposals include a mandatory requirement for member states to have the quality assurance of auditors and audit firms which conduct audits of public interest entities carried out by public oversight bodies such as the IAASA. The US Public Company Accounting Oversight Board is understood as not considering that it can place the same level of reliance on audit reports of public interest entities produced in jurisdictions which do not have an independent oversight system of quality assurance as those which do.

Among the additional functions that will be conferred on the IAASA to enable it to undertake the proposed quality assurance functions are powers to take disciplinary actions or impose penalties in respect of auditors and audit firms. The intention is that these powers of sanctions and penalties will be proportionate and dissuasive.